Euro to Pound Exchange Rate: EUR Still Forecast Higher Despite Recent Drop from Multi-Week Best

Despite suffering a large drop on the 2nd of August the EUR to GBP conversion exchange rate is nevertheless still pointed higher.

• Euro to Pound Sterling exchange rate today: 1 EUR = 0.8397 GBP, down from three-week best of 0.8492
• Pound to Euro exchange rate today: 1 GBP = 1.1909 EUR
• GBP/EUR could fall as low as 1.1344 according to leading technical analyst Karen Jones

Markets are clearly turning nervous ahead of the key Bank of England event due on Thursday where a notable set of measures to help stimulate the economy are expected to be unveiled.

Typically, fresh stimulus is a negative for Sterling as the influx of stimulus money dilutes the unit value of the currency.

But there are concerns that the Bank could underwhelm market expectations, in which case the GBP would likely gain ground.

It is for this reason that we believe traders are liquidating their negative bets against the currency.

In exiting the market, they push up demand for GBP, and that could explain the recent spike in GBP value against the EUR. 

Nevertheless, if we take a step back we are able to note that despite recent weakness the multi-day trend in EUR/GBP remains higher over multiple timeframes thanks to a combination of a steadily deteriorating economic outlook for the UK and a slightly improved outlook for the Eurozone.

A fundamental deterioration in the GBP is mirrored in technical, chart-based, studies which give us some good clues as to where the EUR/GBP pair should trade over coming days.

Our own studies suggest the pair could match the 0.8627 highs at the very least, with a move above 0.8500 confirming more upside.

Commerzbank’s market technician, Karen Jones, a highly regarded member of the Society of Technical Analysts, is even more bullish and forecasts the pair moving up to 0.8815.

From a GBP into EUR angle, EUR/GBP at 0.8815 equates to GBP/EUR at 1.1344.

In her studies, Jones invokes Elliot Wave analysis, a cycle-based analytical technique.

She argues the pair is in the fourth or fifth wave of a larger Elliot wave which started at the May lows.

Elliot Waves are composed of five smaller waves.

According to Elliot Wave rules only wave fours’ can be made up of, or have in them, ‘triangles’, indicating we have probably just completed a fourth wave:

Another rule is that triangles always punctuate the end of a wave 4, with wave 5 then following directly on from the breakout.

This suggests therefore that the final fifth wave is now rising up towards a minimum target at the 0.8627 highs, or even much higher according to Jones’s wave analysis:

“Longer-term the market remains on course for the 0.8815 February 2013 peak. Please note that we have various Elliot wave counts that suggest that the move will extend towards the 0.9250 area," says Jones.

Perhaps a more bullish setup is evident in the following, from technical strategist Matt Weller:

The graphic hardly needs explaining if it is direction you are looking for. 

"EURGBP is trending higher within a bullish channel after breaking out of its daily ascending triangle pattern," says Weller.

Lloyds Commercial Banking’s analyst Robin Wilkin sees the pair trading sideways, with a break above 0.8500 proving the necessary catalyst for an extension higher.

“EURGBP briefly broke above its interim range high at 0.8450, printing a high of 0.8478, but has subsequently retreated. Short-term technical studies suggest that further sideways trading is most likely. On the day, congestion and Fib resistance are at 0.8480-0.8500. A break here could initiate a gradual rally towards recent range highs at 0.8627,” says Wilkin.

For those reading this article from a GBP into EUR angle, EUR/GBP at 0.8450 equates to GBP/EUR at 1.1834. 0.8627 = 1.1592.

Latest Pound/Euro Exchange Rates

	Live: 1.146▲ + 0.15% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.107 - 1.1116
**Independent Specialist	1.13 - 1.1345 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

A Multi-Year Euro Recovery

Meanwhile, Societe Generale's Stephanie Aymes is looking longer-term at the Pound / Euro's prospects.

Aymes notes that EUR/GBP has crossed above the 8-year channel and has embarked on a multi-year recovery.

"It has nearly achieved first target of 0.87/0.8750. Short term down move should be cushioned at channel limit near 0.81," says Aymes.

The first target of the decline from a GBP/EUR perspective is therefore located at 1.15/1.1429.

Short-term down strength is expected to be resisted by channel resistance near 1.2347.

"A move above 0.85 will confirm resumption in up move initially towards 2013 highs of 0.8820 and even to 0.9095/0.9120," says Aymes, whose studies are conducted in EUR/GBP terms.

Thus, from the GBP/EUR angle Aymes says a move below 1.1765 will confirm resumption in the down-move initially towards 2013 lows of 1.1338 and even to 1.0965.