British Pound Lacks 'Energy' to Break Recent Ranges Against Euro and US Dollar

With OPEC in the headlines today the theme in global finance is energy - ironically though this is something Pound Sterling could use as it remains trapped in a ever-shriking range.

• Pound to Euro exchange rate today (29-9-16): 1.1608
• Euro to Pound Sterling exchange rate today: 0.8615
• Pound to Dollar exchange rate today: 1.3030

Global markets are on the move on Thursday the 29th September with a charge higher oil prices aiding global stock markets higher.

The associated improvement in investor sentiment has however completely missed the UK currency which appears stubborn to moving any higher.

Part of the reason for the failure to advance could lie with the Bank of England's Minouche Shafik who has warned more easing was probably needed at some point after the sizable economic shock of Brexit.

"GBPUSD drifted lower yesterday following comments from the BoE’s Shafik, but subsequently retraced and ultimately remains in its recent range", says Robin Wilkin at Lloyds Bank. "The pair continues to lack the energy, and a trigger, needed to break range parameters."

Indeed, for us technicals remain important to calling the outlook for this pair.

We wrote on the morning of the Tuesday 27th that Sterling was due a recovery rally against the Euro, and it seems the market agreed.

The GBP/EUR exchange rate promptly moved from a 48-hour low at 1.1501 to a high of 1.1643 ahead of the Shafik comments.

The call for a recovery was actually based on observations made a few days ago that suggested Sterling was now caught in a sideways-orientated trend that was becoming evermore predictable.

On the 17th of September we reported technical considerations are firmly in control of GBP/EUR and GBP/USD and we believed there was more downside for Sterling ahead, but importantly, the end of the weakness could be called.

Looking at the price action in GBP/EUR at the time, we noted that bulls fear to tread above 1.20 and bears aren’t comfortable below 1.16:

As can be seen the Pound did in fact fall and we are now looking for an attempt at a bounce off the bottom of the range:

It is still too early to say the lower supports have been defended but it would make sense to see a surge of technical buying interest on testing these levels.

The extent of any recovery is also questionable with limits likely to be met at the convergence of the 20 and 50 day moving averages around 1.17 (the grey and green lines, moving averages also tend to attract investor attention the result being trends often stop when they are met).

However, both moving averages have shown little predictive powers in this post-referendum period and we see no reason why a rally back towards the more formidable resistance at 1.20 cannot occur.

Latest Pound/Euro Exchange Rates

	Live: 1.1451▲ + 0.07% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1062 - 1.1107
**Independent Specialist	1.1291 - 1.1336 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Pound / Dollar Exchange Rate Bullish in Immediate-Term

Meanwhile, the GBP/USD exchange rate has seen a similar pattern of trade with the support line at 1.2880 being the level we expect support to be found.

While Sterling has not actually fallen that far over recent days it is worth noting that often buy orders are set above support zones to ensure traders don't miss out on entering a trade.

Therefore, the rebound could actually occur earlier than anticipated.

"GBP remains bullish against USD. We continue to set sights on GBPUSD breaking above 1.3033 going forward to test 1.3082," says a note from Hong Long Bank Berhad.

Hong Leong believe USD remains bearish with potential for downside to accelerate on firmer risk  appetite and disappointment in US data.

"Despite the gap-up at opening, we remain doubtful if the Dollar Index could push higher beyond 95.60. We set sights on a reversal of current gains and a drop back to circa 95.42," say Hong Leong of the broader US Dollar complex.

Improved Investor Sentiment Aids Sterling

With Sterling so dependent on external drivers and sentiment at present we believe a trigger to the recent buying could well have been the strong consumer sentiment data out of the US.

Over recent days we have noted how Sterling has responded to stock market moves with the recent Deutsche Bank-inspired decline adding notable pressure.

The neagtivity may have been undone by the improved sentiment on Wall Street, where markets responded positively to news that the Conference Board's Consumer Sentiment reading for September came in at 104.1, better than the 90.0 economists were forecasting.

Yet, it is worth reminding readers that Sterling remains biased lower against a slew of currencies and they should be wary of any further deteriorations in market sentiment or rude Brexit-related headlines.

"If investors were not buying the pound for fundamental reasons they must have been doing so for technical reasons. And sure enough, it was a three-year low for sterling against the euro that provided yesterday's creaky springboard. Proximity to July's 28-year low against the US dollar will have helped. But as rebounds go, Tuesday's was feeble and gives no reason to think the downward pressure on sterling has been relieved," say Moneycorp in a briefing to clients.