Pound Entering Recovery Mode Against Euro as Exchange Rate Markets Consider Implications of Cox Murder

The pound to euro exchange rate's chart is showing the first signs of a comeback as currency traders contemplate the implications of a UK lawmaker's murder while the implied probability of an UK exit from Europe remains below 40%.

Sterling is seeing turning more constructive against the euro ahead of the new week; despite the massive event risk that lies ahead.

Ahead of the new week we note the implied probability of a British vote to remain in the European Union on June 23 fell to 65% on Saturday.

According to Betfair, the probability of a Remain vote fell as low as 60% on Thursday before rising to around 67 percent on Friday.

Currency markets will head into the new week having digested the implications of the Murder of Labour MP Jo Cox.

Thomas Mair, 52, has been formally charged with the murder, and at his first court appearance he gave his name as "Death to traitors, freedom for Britain."

Within the context of the current EU campaign, the words could have conotations with some strands of campaigning coming out of the Leave camp.

Some analysts suggested sympathy for Cox might boost the Remain campaign which would certainly be a positive outcome for the British pound which tends to appreciate on any strengthening in the Remain's position.

ING Bank's FX Strategist, Christopher Turner says he does not however see a major recovery in GBP as likely.

Turner expects further safety positioning as traders unwind their risky positions in the last few days before the vote, which should keep the pound under pressure and the dollar bid:

"Whether this tragic event has some bearing on next week's vote remains to be seen, but given the huge swing in the polls to Brexit over the last two weeks, we doubt investors will be in any mood to put their apparently large stock-plies of cash to work in risk assets.

"That is going to keep core bond yields under pressure, basis swaps reflecting tighter USD funding and probably the USD gently supported."

Results won’t be known until at least 4am London time, and if the race is extremely tight, it could take a few more hours to establish the result. Polls point to a Leave win but betting markets suggest Remain.

"No matter which way this goes, markets will be volatile: a Remain win boosts GBP and yields, while a Leave win likely means a sharp fall in GBP and drop in yields but in extremely illiquid markets in which we would expect Central Banks to intervene verbally and/or physically," says a note issued by TD Securities ahead of the new week.

Latest Pound/Euro Exchange Rates

	Live: 1.1452▲ + 0.08% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1063 - 1.1108
**Independent Specialist	1.1292 - 1.1337 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Pound to Euro Exchange Rate Could be About to Reverse

The charts of the pound to euro pair shows two successive days of strong closes.

This is probably a first sign that the tide may be changing for the pound, which has taken a hammering over recent days, and that the currency may see some upside in the future.

Days - also refered to as candles by chart analysts - with long trading ranges that close near their highs, are especially strong technical signals of more upside to come, although their forecast horizon is not long-term.

Nevertheless, they can mark the beginnings of medium term trends.

This bullish outlook falls in line with research from Lloyds Commercial Banking and Nordia, which has pointed to the probability of further upside in the exchange rate over the next 3-6-month horizon, and a move above 1.30 to perhaps as high as 1.35.

Another technical sign there could be more upside comes from viewing the move down from the 1.44 highs in July last year as a type of pattern called an Elliot Wave.

Without wanting to get too technical, such an analysis would suggest the move up from the 1.23 April lows had not completed - at least in time.

It will only have completed after the MACD - on a special 4,31 setting used to analyse Elliot Waves - has moved above the zero line -  which is has not yet done.

This analysis would suggest the possibility of the next move being up, to retouch the 1.32 May highs.

The fundamental background to a recovery in sterling may come from the 'Leave' campaign losing support due to association with the killer of the MP Jo Cox after reports her attacker shouted Brexit slogans before murdering her.

GBP/USD suddenly turns bullish

Charts are showing that the GBP/USD pair has broken back above a major support level reducing the bearishness of the technical outlook.

The exchange rate has now broken back above the 'neck-line' (blue line on chart below) of an inverse head and shoulders bottom pattern.

It also broke back above 1.4089 resistance, which was expected to cap any rebounds.

On Thursday the pair formed an up-day with a longer-than-average range and a close in the top half of the range; this highly bullish day brought the exchange rate
firmly back above the neckline and was itself a sign that there will probably be more bullishness ahead.

The pair is now currently pushing up against resistance from the old trend-line connecting the top of the head and the right shoulder of the inverse head and shoulders (yellow line on chart below).

If it manages to break above that line as well, marked by a move above the 1.4350, it will probably continue higher to a target at the 50-day moving average at just above 1.4430.

The MACD indicator, which measures momentum, has fallen below the zero line indicating the start of a bearish trend.