The EUR/GBP exchange rate has been consolidating within a range between about 0.8300 and 0.8700 since November 2016.
The next move is more likely to probe lower than higher according to analysts at J.P Morgan, who see the 0.9400 October highs as marking an important long-term top.
0.94 EUR/GBP equates to a the low seen at 1.1305 in GBP/EUR terms.
“Taken together we see a high likelihood that a sustainable high has been marked at 0.9403 in October and that a much broader down-consolidation if not a new downtrend has been launched," say analysts at the world's largest investment bank in a note dated April 7.
With regards to the initial target the Euro's decline against Sterling might extend to, analysts have a minimum price target of 0.8168.
From a Pound to Euro perspective this equates to a rise to 1.2242.
This equates to a retracement of about 50% of the 2015-2016 rally higher in EUR/GBP.
But - "the decline might not be straight forward,” caution analysts.
Our own studies have us agreeing with JP Morgan’s view that the 0.9403 highs mark a “sustainable high”, given the shape of the top is very much in line with other comparable historical highs, and is, therefore, unlikely to be surpassed in the short to medium-term.
The exchange rate is currently trading right on top of a major trendline drawn from the late 2016 lows and a break below would be a very bearish sign, changing the overall tenor of the chart to one that is much more negative.
Such a break would probably be confirmed by a move below 0.8400 in EUR/GBP or above 1.1905 in GBP/EUR.
The trendline break would be expected to follow-through to J P Morgan's target at 0.8168.
The diverging MACD momentum study in the bottom pane of the weekly chart is another persuasive sign the pair is likely to sell off.
Note how the MACD is falling but the exchange rate is not – but is going sideways instead – this indicates underlying weakness not reflected in the price and can be a pre-cursor to more weakness.
With the Euro suffering further losses against Sterling at the start of the new week this thesis continues to convince.
Recall that this is however a technical forecast and any shudders to the market delivered by the outcome of the French election could alter this picture.
Furthermore, should the European Central Bank (ECB) point to interest rate rises over coming months the Euro would likely reverse.
However, judging by recent communications from the ECB this looks unlikely for now and we have to stick with the view that the easiest way forward for EUR/GBP at present is lower.