- Analysts give their latest set of targets for GBP/EUR
- What happens to GBP/USD could hold the keys for GBP/EUR
- 1 Pound buys 1.1580 Euros at the time of this article's update
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The British Pound is charging higher against the Euro and we are told the outlook remains constructive with analysts telling us they are eyeing up a series of targets above today's GBP/EUR exchange rate of 1.1580.
The ongoing gains in GBP/EUR come amidst a broad-based push higher in Sterling with the Pound Effective Exchange Rate - a measure of overall Sterling strength based on a basket of GBP exchange rates - finally cracking above the 80 level for the first time since June 2016, which is of course when the Brexit referendum was held.
"The fact is that Sterling is gaining ground against most leading currencies," says Bill McNamara, a professional technical analyst who heads up The Technical Trader service.
The Euro is however the largest constituent in the Pound Effective Exchange Rate basket, which is compiled by the Bank of England, and the move higher therefore reflects Sterling's improved fortunes against the single-currency in particular of late.
McNamara says Sterling's latest price action has lifted it to its highest reading in eleven months relative to the Euro and "there is still little in the broader technical picture to suggest that the latest rally is close to running out of steam."
"In fact, the break of resistance at 1.15 or so implies that there is scope for a run back up to around 1.18 before too long," adds the analyst.
Trevor Charsley, who sits on the FX Risk Management Solutions desk at brokers AFEX says much of what happens with GBP/EUR will rely on what happens to the headline GBP/USD exchange rate.
"Sterling is continuing to recover lost ground versus the Dollar and indeed other currencies as well. Various USD pairings currently remain in well-defined holding patterns but Cable looks well positioned to break to new cyclical highs over coming sessions," says Charsley referring to GBP/USD.
Charsely says of late the GBP/USD has consolidated of late and in doing so has more or less repeated what it did in the fourth quarter of 2017.
The Pound shot higher after this consolidate phase, going from 1.3506 at the start of January 2018 to peak at 1.4346 towards the end of January.
"This suggests another sizeable up-leg in due course with concomitant implications for GBP/EUR as well," says Charsley.
Above: Sterling-Euro exchange rate with potential next targets as suggested by AFEX.
So could the GBP/EUR and GBP/USD be about to move in lockstep together?
"An accelerated breach of nearby 1.1600 area resistance will, if seen, improve both daily and weekly Sterling technical readings - effectively leaving the past few months choppy re-consolidation pattern as a completed base," suggests Charsely.
The analyst says the exchange rate prices should then extend toward 1.1750, if not 1.1900, as well going forward with intervening erosion likely to be short- lived.
However, a word of caution, some patience might be required, "for the time being GBP prices here are still trapped in this volatile holding pattern and thus another set-back to 1.1450 or 1.1300 cannot be ruled out beforehand," says Charsley.
Investment bank Credit Suisse have meanwhile confirmed they believe a stronger Pound could lie ahead and this spring could see Pound Sterling rise and challenge its highest levels against the Euro since the Brexit vote of 2016, according to strategists at i.
Analysts are confident enough in this scenario unfolding to make selling EUR/GBP a 'top trade' for the second quarter of 2018. Betting on a rise in Pound Sterling earns 'top trade' status thanks to a favourable alignment of Brexit-related news and supportive UK economic fundamentals.
“The rationale for the view is that the recent Brexit agreement with the EU has significantly undermined the likelihood of a “no deal” outcome, and is supported by a hawkish BOE and still inexpensive GBP valuation,” says Nimrod Mevorach, a currency strategist with Credit Suisse.
Much will however depend on this week's data which sees wage, employment, inflation and retail sales numbers released. Any disappointment in either of these readings could well call time on Sterling's rally higher.
However, most analysts we have heard from ahead of the releases are confident that no major negative surprises are likely, despite the poor weather suffered at the start of the year.
"Inflation dynamics in the UK appear to be on an idiosyncratic path relative the rest of G10, which suggests the BOE might be less likely to ditch its hawkish bias than other central banks if risk appetite deteriorates further at the global level,” Credit Suisse's Mevorach adds.
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