British Pound / Euro Exchange Rate: Forecasting Gains if 50 day M.A Remains Intact
A key support level in the GBP to EUR exchange rate managed to stem losses and gives this currency pair a shot at delivering gains in the coming week.
- British Pound to Euro exchange rate today: 1.1810, 48 hour best rate: 1.1874
- Euro to Pound Sterling exchange rate today: 0.8468, 48 hour best rate: 0.8496
The Euro has been in control of late the GBP/EUR pair of late with the single currency enjoying a profitable mid-week session with gains peaking on Thursday the 8th September.
The advance was capped that day by the ECB's policy meeting.
The ECB announced no new stimulatory measures which was at first positive for the Euro.
ECB President Mario Draghi is clear that he believes the Bank's policies are working and that further economic progress now rests with national goverments.
In fact, Draghi hinted that an extension of QE had not even been discussed at yesterday’s meeting.
This all suggests that the ECB is in no rush to introduce fresh pro-growth and EUR-negative policies.
"Clearly, markets expected more action or, at least, clearer signals from the ECB on additional stimulus measures," note Lloyds Bank Commecial Banking in response to the event.
This should allow the Euro to remain firm ahead of the weekend and looking at the leader-board at present the shared currency is the third best performer in G10 after the New Zealand Dollar and Yen.
The Euro could have done better, but on reflection traders cut back exposure to the single currency ahead of the weekend in the belief that some kind of action would yet be delivered before the end of the year.
Downgrades to both inflation and economic growth at the Thursday event attest to these expectations for further rate cuts.
Understandably GBP/EUR has moved lower in the face of the Euro's strong mid-week bid.
The pair remains prone to further weakness in light of the dominant long-term down-trend triggered by the June Brexit vote.
There has been a notable recovery in the August-September period but this week has seen the GBP/EUR exchange rate roll over from its 1.20 highs, after posting a bearish 'shooting star' candlestick pattern on the daily chart:
The pattern is a short-term bearish indicator and there is certainly a possibility of a move lower, however, the 50-day moving average just below the current price level at 1.1797 is likely to be an impediment to progress lower.
So far we have seen the 50 day M.A provide support with traders clearly betting that other traders will bet on a rebound at this point - often such technical signals operate as self-fulfilling prophecies.
For confirmation of more downside, I would be looking for a clear break below the 50 day M.A, signalled by a move below 1.1795.
Ahead of the new week we see the level holding and this could well allow Sterling to retest the 1.20 highs again should sentiment to the UK economy improve further.
Should the 50 day M.A break then the next target lower is the monthly pivot at 1.1740 and this could further impede downside, at least temporarily – or act as a near target for a strengthening Euro.
The fact that the pair has completed a clear three-wave a-b-c correction up from the mid-August lows and would now be expected to resume its down-trend, is a further bearish indicator, suggesting the 1.2000 highs could be a corrective top.
Latest Pound/Euro Exchange Rates
  | Live: 1.1391▼ -0.13%12 Month Best:1.2162 |
*Your Bank's Retail Rate
| 1.1004 - 1.1049 |
**Independent Specialist | 1.1232 - 1.1277 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Euro Outperformance: Is it Over?
As mentioned the Euro traded with a firm tone after the ECB failed to deliver any further EUR-negative policy steps.
There is the risk that the jump in the EUR provides the required momentum to propel the currency higher against its major competitors.
With traders likely to be less worried by the threat of impending action in coming months - as mentioned Draghi said further quantitative easing wasn't event discussed - we could well see the currency attempt to test its 2016 best against the Dollar and Pound.
"The Euro chalked up further gains and charted an intraday peak at 1.1327. On a daily basis the technical indicators do not stand in its way: MACD and Stochastic are pointing north - the latter is even above its signal line - and the DMI is sending an intact buy-signal," says Ralf Umlauf with Helaba Bank in Frankfurt.
And, as a number of analyst have pointed out, recent EUR/GBP trade has been dictated by the larger EUR/USD pair.
Therefore, any extension in EUR/USD could well impact EUR/GBP.
However, Lloyds Bank Commercial Banking see things a little differently - they believe Euro strength will be short-lived and believe it is still likely that the ECB will still announce further stimulus before the end of the year.
So while the Euro is favoured, perhaps the lion's share of strength is now behind it.
