Pound euro exchange rate (GBP/EUR) offers bulls fresh hope (Or are we witnessing a long-term stall?)

By Will Peters

Those hoping for further gains in the pound to euro exchange rate will be encouraged by recent price action.

The pound to euro exchange rate has managed to stay above the 1.21 level through the course of this week.

Overnight, a close at 1.2127 saw two Short-Term Bullish technical signals form - an Inside Bar and Price Crosses Moving Average (21-day).

This tells us that technical pressures to the upside could be expected, however we doubt any major moves will transpire at this stage.

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Sterling euro slips into a period of calm

The below assessment of sterling euro has been provided by analyst Bill McNamara at Charles Stanley:

"The latest price action for the UK currency shows that it has slipped into a period of relative quiet, one consequence of which is that it has eased back from its latest highs relative to the euro (at 1.223 or so). However, the fact that it has managed to hold above its 50-day MA is a positive and although we could yet see a test of the short-term uptrend the outlook remains relatively benign."

Offering a decidedly more bearish assessment of the outlook for the pound euro rate is the team at foreign exchange brokerage Afex who suggest the next moves for the currency pair could be lower.

Afex tell us:

"Having briefly scored another new cyclical peak Sterling prices are selling off again as yet another reaction unfolds.

"This complicated (yet still gradually rising) series is likely to extend further over coming weeks unless the market drops beneath secondary support at 1.1975 in the meantime. However at some point GBP values must either accelerate upward or else risk a more substantial and long-lasting top forming.

"An obvious opportunity to resume prior (pre-2009) macro bearishness was already spurned twice in 2013 and to re-instate this negative scenario indicators suggest an extension through key 1.1800 support would probably be required as well."

Markets: European shares in the red, EUR looks resillient

A poor start seen in Europe this morning; share markets have kicked off the session on the back foot as investors take some cash off the table following previous session gains.

"Across other assets, gold is losing ground, down 3 bucks whilst oil prices are under pressure and core government bonds are seeing a bit of flow. In the FX space, EUR/USD looking decent at 1.37 as well as GBPUSD, though USDJPY is trading on the weak side," notes Ishaq Siddiqi at ETX Capital.

In Italy, the country’s youngest ever PM Renzi won a vote of confidence in the Senate, paving the way for much needed economic reforms. Meanwhile over in Ukraine, lawmakers today will vote on a national unity government led by a PM they trust so the country can receive economic aid to prevent a default.

Ukrainian stocks and bonds rallied on Monday after some order was restored to the country but at the same time, uncertainty looms so long as Ukraine does not receive financial aid.
 
On the macro front, German GDP for the Q4 was confirmed at 0.4%, as expected with annual pace of growth running at 1.4% - no surprise to the market and welcome on the whole.

French business confidence remained stable, continuing to point to a recovery and relieving those on in the market who expected a deterioration in activity. Looking ahead on the economic agenda, we have the S&P/Case-Shiller home price index and US consumer confidence.