Threat of a Euro 'Break Down' Against Pound Sterling: Forex.com
The Euro to Pound Sterling exchange rate (EUR/GBP) appears susceptible to further decline according to the latest technical analysis of this much-watched pair.
Forex.com say they will be watching today's Bank of England meeting for further signs of Sterling strength that will see EUR/GBP suffer its next major break lower.
At the time of writing the exchange rate is quoted at 0.8413 thanks to a recent run of Sterling strength. This gives a Pound to Euro rate at 1.1886.
The Bank is due to release the minutes from its monthly policy meeting and its quarterly inflation report that contains all their latest economic forecasts and expectations for coming months.
In the past the event has proven decisive in setting direction in Sterling for coming months.
Several analysts have however suggested the Bank is likely to lower growth forecasts at the meeting which is unlikely to be positive for Sterling and could well bring the EUR/GBP exchange rate's short-term decline to a halt.
Indeed, ever since the UK Prime Minister announced a snap general election in June the Pound has been trading with a positive tone.
“Recently, the Pound got another shot in the arm on the back of the announcement for a snap general election by UK Prime Minister Theresa May, scheduled for 8th June,” comments Forex.com’s Fawad Razaqzada who has told clients he is watching for further strength in the Pound near-term.
Breakdown
EUR/GBP is trading at 0.8407 at the time of writing and is vulnerable to a breakdown over the next few days argues Razaqzada.
After, “a small bounce from the 0.8370/85 area,” he sees the pair renewing its strong downside pull and breaking through the 0.8370-85 support level.
“If and when this support level gives way, we are expecting a run down to the next support area around the 0.8300 handle. Given the number of times this level has already been tested, a breakdown is what we are anticipating to see,” commented Razaqzada in a note on the pair.
The analyst highlights recent broadly positive UK data which should help the trend started by the election announcement to extend, and may overshadow any forecasting changes from the BOE.
“Meanwhile, Thursday’s monetary policy decision from the Bank of England will likely cause some short-term volatility in the pound. But ahead of the election and amid mixed-bag – but generally positive – data, the BoE is highly unlikely to deviate from its current neutral bias, but will almost certainly maintain interest rates and QE unchanged,” says the Forex.com analyst.
The 0.8300 are a target for another analyst, Commerzbank’s Karen Jones, who is also bearish the pair.
She notes how the pair was repulsed by the major trendline at 0.8573 under which it continues to trade in line with a long-term down-trending bias.
The pair is also below the key 200 and 55 day moving averages.
“A retest of key support at 0.8334/04 is expected. If slipped through, the 0.8252 the July 2016 low would be in focus,” commented Jones. In a note to clients on Wednesday.
