Pound Sterling Forecasts Against EUR, USD, AUD and NZD

Latest research and predictions for the British pound against the euro, US dollar, Australian and New Zealand dollars.

The big fundamental event for pound sterling this week is the Bank of England's (BoE) rate meeting on Thursday at 12.00 GMT.

Whilst no change in policy is expected the decisions could “lay the foundations for the subsequent policy debate in months ahead,” suggests a note on the matter from Bank of America Merrill Lynch honing in on the single most important factor for the currency at present.

The timing of the first interest rate is everything - should markets believe the time is drawing clearer then we could finally see the pound rally under its own steam.

According to analysts at TD Securities, it’s the minutes released alongside the actual decision which will reveal the most information to investors.

For sterling to move higher we will need an indication that the Bank is more optimistic on the economic outlook and any hint at all of a 2016 interest rate rise will be grabbed by traders.

“More interesting will be the minutes published alongside, where we expect a dovish discussion of the many recent signs of lower cost and price pressures.

Latest Pound/Euro Exchange Rates

	Live: 1.1459▲ + 0.14% 12 Month Best: 1.2162
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* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

“These developments have led us to move our expectations of a first Bank of England hike from May out to November.”

TD see subdued inflation as the main reason for a delay in the rate hike.

The BoE recently noted:

“There would need to be a sustained firming in domestic cost pressures, compared with their current rates, in order to return inflation to the 2% target in around two years’ time”

Investors should scrutinize the minutes published alongside the decision to gauge whether the dovish tone remains.

Data

Other data begins with British Retail Consortium Data out on Tuesday,  like-for-like sales fell -1.4% in the previous month.

Industrial and Manufacturing Production are also scheduled for release, but are not expected to show much growth, as according to the British Chamber of Commerce the sector is “in stagnation.”

TD Securities are optimistic:

“UK manufacturing has had a terrible year thus far, with three consecutive quarters of decline. November's print should reverse some of October's loss (though we see downside risks), and Q4 growth is likely to be positive. If recent losses in the currency are maintained, we should see manufacturing build on these gains into early 2016.”

Policy divergence with the Fed

A theme that could drag, however, is the potential for a widening divergence between the monetary policy outlook with the Fed.

Friday’s stellar payrolls result has increased the possibility of a January rate hike from the Fed, and the contrasting potential delay for the BOE in hiking rates, shows increasingly diverging outlooks for which could translate into more loses for cable.  

Technical Forecasts

GBP/USD Outlook

Starting with the GBP to USD conversion we see that the current down-trend may have reached a level of major support in the form of the S1 Monthly Pivot situated at 1.4563, which, would be expected to prop up prices for a while, or maybe even lead to a short-term bounce.

The pair is slightly overstretched to the downside with ADX showing an above 50 reading.

Nevertheless, with so much positive sentiment for the dollar a break down is also possible.

The 1.4500 level as key, with a decisive break below it necessary to open the gates to more downside.  

As such I would want to see a move below 1.4480 for confirmation and a target at 1.4400 where the S2 Monthly Pivot is likely to provide further support.

EUR/GBP Outlook

The month of December represents a particularly strong move lower, and a possible predictor of further weakness, however, first it would require a breakdown through the neckline of a large bearish head-and -shoulders pattern visible on the weekly charts, at 1.3300, for confirmation of a break lower.

The existence of the S1 Monthly Pivot at 1.3268, however, is another obstacle the pair needs to leap-frog to open the way lower.

Therefore, a clear 20-point move below the pivot – so below 1.3248 might be enough to signal a break.

Such a move could see a dramatic devaluation as head and shoulders triggers lower.

First stop would be psychological 1.3000 level followed by 1.2664, near the 200-week MA.

GBP/AUD Outlook

Against the aussie, the pair has moved up to the top of the channel.

A break clear above 2.1100 would confirm a breakout from the descending channel and signal a probable move up to an initial target at 2.1200 where the R2 Monthly Pivot is situated.

Above that there might even be further gains to an eventual target at 2.1750.  

For more down-side I would want to see a break below 2.0490, which would signal a move down to the lows of the channel at 2.0200.

GBP/NZD Outlook

The chart shows the bullish 3-white soldier candlestick formation at the bottom of a 3-wave corrective pattern.

This pattern has a high probability of short-term trend-reversal, and therefore more upside to come.

The monthly pivot which was capping gains, has now been definitively broken.

For confirmation of more upside I would ideally wish to see a break above the 2.2305 highs with a target at the 50-day MA at 2.2480.