Pound euro exchange rate (GBP/EUR) forecast: Outlook uncertain as sterling delivers a gutsy performance on Monday
- Written by: Gary Howes
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The British pound is attempting to claw back ground lost to the euro on Friday. Trading remains volatile and at present it is hard to forecast a clear winner.
The pound to euro exchange rate is trading half a percent higher on Monday in an attempt to counteract the sharp falls witnessed on Friday.
In his speech at the World Economic Forum on Friday, ECB President Mario Draghi claimed that although risks remain to the downside, he does not see deflation in the Eurozone.
These comments vs more dovish remarks from Governor Carney helped drive the pound to euro exchange rate rate downwards.
"Today it seems the euro will dictate the direction of the rate, however, the pound has shown resilience, which may be enough to keep the rate above 1.20," says Sasha Nugent at Caxton FX.
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British pound sterling flattened by Carney
The British pound saw its advantage against the euro evaporate on Friday; turmoil on global markets did not help but neither did the Governor of the Bank of England.
"Buried within Mark Carney's speech in Davos last Friday was the apparently innocuous phrase; "the appreciation of sterling will hold back the expansion of net exports". It was not even a sentence but the moment investors picked up on it they sold the pound, sending it a cent lower against the US dollar and half a cent lower against the euro," says a note from Moneycorp.
The South African rand saved sterling from being the weakest performer on Friday but the pound still lost an average of 0.7% - one and a quarter US cents - against the dozen most actively-traded currencies.
Forecasts for the euro to pound exchange rate (EUR/GBP)
Concerning the technical forecast for the euro vs the British pound exchange rate, we see the outlook continues to favour the British pound.
That said, volatility has picked up recently so caution is advised!
Luc Luyet at MIG Bank comments:
"EUR/GBP continues to improve after Thursday's bullish engulfing pattern. The hourly resistance at 0.8264 has been broken and the steeper declining trendline is challenged. Another resistance stands at 0.8350. Hourly supports can now be found at 0.8248 (23/01/2014 high) and 0.8210 (24/01/2014 low).
"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)."
UBS say:
"The important resistance is at 0.8349. While this holds, the cross remains vulnerable to extend its bearish trend to test support at 0.8160. A close below which would be the next bearish development."
The next big event on the horizon for the pound to euro exchange rate is the release of UK Q4 GDP figures from the ONS tomorrow.
The markets anticipate the GDP YoY growth at 2.8% versus 1.9% released previously.
