Pound Euro Exchange Rate (GBP-EUR) Momentum Could See Advance to 1.22
- Written by: Gary Howes
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The pound euro exchange rate is unchanged on Thursday following a strong 24 hours that puts the GBP-EUR on course for a test of 1.22.
Prompting the pound to euro rally on Wednesday was the release of the February UK Services PMI data which beat expectations.
Following the release of the data the UK currency found a bid and we saw the pound to euro exchange rate advance to record gains of 0.4% by late afternoon. We now see 1 GBP converts into 1.2174 EUR.
(Note that this quote is taken from the spot market and is subject to a discretionary spread when delivered by your bank. An independent FX provider will however guarantee to undercut your bank's offer, thus delivering more currency. More on this here).
Short-term momentum has turned positive according to analysis issued by Recognia Inc. GBP-EUR closed at 1.2175 overnight, the Momentum signal is significant because it signals the strength of price trends, a healthy price trend tends to exhibit strong momentum. 1.22 is the next target.
Sterling appears to have regained momentum with three days of good data now lying behind it. Today's Services PMI came out at 58.2, analysts had expected 58. This will likely confirm a positive tone to GBP-EUR going forward and a test of 1.22 can't be ruled out.
Pound euro extends sideways trading pattern
On Tuesday, the pound to euro rate extended its sideways trading pattern below the 1.22 figure.
"The intraday movements in EUR/USD and cable (GBP/USD) driven by developments in Ukraine caused some intraday volatility in EUR/GBP, too, but at the end of the day, the pair was little changed. Cable also reversed some early gains, as the dollar was better bid at the end of the session," notes Piet Lammens at KBC Markets.
Commenting further on EUR/GBP, MIG Bank say:
"In the longer term, the technical structure remains negative as long as prices remain below the resistance at 0.8350 (13/01/2014 high). Monitor the support implied by the 61.8% retracement (of the 2012-2013 rise) at 0.8160. Another key support can be found at 0.8082 (01/01/2013 low)."
This morning, BRC shop prices dropped further into negative territory, declining from -1.0% Y/Y to -1.4% Y/Y.
For now, the impact on sterling trading is limited.
"A slightly bigger than expected setback is possible for today’s services PMI. However, we don’t expect a big negative impact on sterling," says Lammens.
Keep an eye on GBP/USD
Earlier this week, the Ukraine crisis had only a limited impact on sterling trading and the theme is receding as a driver for markets.
Lammens says that for the GBP/EUR we should keep an eye on the headline GBP/USD:
"We have the impression that the global sentiment on the dollar might improve in case of good US eco data. The question is which the two cross rates, EUR/USD or cable, will be affected the most by a dollar rebound. In the run-up to the ECB meeting, we expect EUR/USD to be the most vulnerable short-term.
"So EUR/GBP might come under slight downward pressure too. 1.6584 is a first important support for cable.
"A break below this level could affect global sentiment on sterling. However, we’re not that far."
