GBP/EUR exchange rate at risk of further declines; where are the key levels?

At 11:30 in London we see the pound to euro exchange rate quoted at 1.1680; 0.05 pct up on last night's close. This is hardly a relief rally if we consider the declines witnessed yesterday.

The euro pound rate is thus at 0.8562.

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Beware further gains by the Euro

"The uptrend in EURGBP solidifies given the trend divergence between EUR and GBP. With trend and momentum indicators firmly positive, we remain buyers above 0.8500 (Sep-Oct uptrend bottom). First set of offers lies pre-0.8600 and the bets are mixed at 0.8530/50 area. Stops are seen below 0.8500," warns Ipek Ozkardeskaya at Swissquote Research.

Ozkardeskaya has observed that the euro remains favoured amongst currency market traders:

"Speculative EUR-longs reached the highest levels since May 2011 according to Oct 8th CFTC data, warning that the risk of s short squeeze should be kept in mind. Heavy reaction to no-news, as ECB Nowotny’s comments yesterday, is the perfect example of the overreacting markets; there is need for support to the current EUR strength."

This is where technicals jump in.

"At the current levels, EURUSD has room to breathe after its massive rally since mid-October. The 14-day RSI (currently at 66%) stands below the overbought zone and the pair is back within the Bollinger bands. EURUSD trend and momentum indicators will continue to remain bullish above 1.3684 and traders are likely to keep chasing dip-buying opportunities on downside corrections," says Ozkardeskaya.

Investors can't make up their mind about the British pound

Meanwhile there is little data for traders to consider with regards to the British pound.

Moneycorp have observed that we are in some kind of 'silly season' when it comes to trading the currency:

"There is a dichotomy to the way investors view the pound at the moment. On one hand there is suspicion that recent figures overstate the true economic situation; higher house prices and output are believed to mask weak productivity and real earnings (Bloomberg headline "Pound slides for a third day amid bets economy can't sustain gains).

"On the other hand there remains an underlying bullishness about sterling even if it is insufficient to stimulate new buying (Bloomberg headline "Pound forecasts soar as BoE's Carney signals shift").

"Investors' hot-and-cold attitude to the pound is mirrored elsewhere. On Thursday, Friday and Monday the yen was successively, the worst, best and worst performer among the major currencies."

On Friday we get the first in the next of the Markit PMI series - some solid economic data will be welcome.

Until then we continue to see trade in GBP driven by vague factors and we continue to hear commentators offer up poor and contradictory explanations.