Euro to Pound: Resistance Levels and MPC Minutes Thwart Euro's Gains Once More

GBP was the second-worst performing G10 currency through the mid-month session and as we move towards the end of November there appears to be little relief on offer.

UK inflation may have edged higher over the course of the previous months but markets have got the message loud and clear from the Bank of England - interest rates are not going to rise until late 2015 at the earliest.

Against this backdrop, EURGBP rallied over a big figure from the prior week’s close as it rebounded from a 6 year trend support line near 0.7780. Key to further direction is the resistance to further moves signified by the upper line that delineates the downward channel.

The levels are clear in this image provided courtesy of BMO Capital:

Note all market quotes here are subject to a discretionary bias when your bank makes international payments on your behalf. An independent FX provider will guarantee to undercut your banks rate, thereby making your GBP AUD transaction go up to 5% further in some

GBP / EUR Transfers? Don't be beaten by the markets. Ensure your FX provider has correctly set your protective stop-loss and buy-orders to ride out and even benefit on FX market movements, learn more.

Outlook for Euro vs Pound Exchange Rate

Chris Morillo at BMO Capital tells us:

"Weekly momentum indicators (Stochastic, RSI, and MACD) all show more topside may be likely.

"However, we are nearing some key short & medium-term resistance levels. As a result, we prefer selling the rally toward the 0.8000/0.8010 resistance, placing a stop above 0.8055 and targeting a return to six year old trend support at 0.7780/0.7800 in the days/weeks ahead."

However, according to Luc Luyet, analyst at Swissquote Research the euro's technical outlook could be improving:

"Hourly supports can be found at 0.7935 (14/11/2014 low) and 0.7905 (intraday low).

"In the longer term, the major support area between 0.7755 (23/07/2012 low) and 0.7694 (20/10/2008 low) has held thus far.

"A decisive break of the resistance at 0.8034 (25/06/2014 high, see also the declining channel and the 200-day moving average) would confirm an improving technical structure."

Provided the positive momentum enjoyed by the euro we are witnessing in the mid-week session continues we could well see the pro-GBP technical picture finally breakdown.

If this proves to be the case then the long-held bullish viewpoint on sterling euro will finally be broken.

We Remain Negative: Commerzbank

The tepid improvement in support for the shared currency will ultimately prove short-lived in the opinion of some analysts who are yet to be convinced by the euro's recent strength.

Axel Rudolph at Commerzbank says:

"EUR/GBP remains close to the 2013-2014 downtrend line at .8010 where it is likely to struggle. While capped here, we remain longer term negative. Reinforcing this resistance are the .8083 50% retracement of the move down from March and the 200 day ma at .8055/83.

"EUR/GBP has found good interim support at .7800 which guards major support at .7757/44, (the mid-August 2012 low and the 50% retracement of the entire move up from 2000 to 2008)."

Exchange Rates Today: MPC Minutes Provide GBP Relief

The MPC minutes appear to have provided the pound sterling relief after they revealed a more balanced assessment compared to the QIR.

In particular, for some of the members voting to leave rates unchanged, they saw “risk that the degree of spare capacity would be eliminated more quickly than assumed in the November Report’s central projections” pointing to upside risks to the inflation forecast implied by market rates.

"Rate hike expectations were pushed back post-QIR, but this statement in the minutes confirms our view that the re-pricing was somewhat exaggerated. While the short-end of the UK curve has steepened slightly after the minutes, market pricing for the first rate hike remains at Nov-2015. We see potential for a further recovery in GBP as rate hike expectations get brought forward. Focus will shift to the UK retail sales today, an upside surprise could trigger a further recovery in GBP," say Lloyds Bank Research.

Euro Well Supported

The euro rose against the greenback at the start of the week after Germany’s closely watched ZEW survey rose for the first time since December this month.

The gauge of investor morale rose in November largely on the relief that Germany narrowly avoided recession in Q3.

Omer Esiner at Commonwealth Foreign Exchange says:

"The ZEW however, remains close to October’s near two-year low and the impact of a still uncertain geopolitical backdrop remains a threat to Germany’s economy that investors remain very aware of.

"So while the data may provide the euro with some near-term support, it is unlikely to change the outlook or additional monetary easing from the ECB. Just yesterday, ECB President Mario Draghi told the EU’s Parliament that the Governing Council remains “unanimous in its commitment to using unconventional instruments”, including the purchase of sovereign bonds."

Looking at the pound rate today, UK CPI rose by 1.3%(y/y) in October, which was in line with market expectations and just above the 1.2%(y/y) five-year low for September.

"Given the unambiguously dovish tone of BOE comments recently, some had feared of a lower than forecast print for CPI. Still, the pound’s gains were very marginal, given that CPI is still well under the BOE’s 2.0% target, which should keep the bank sidelined for some time," says Esiner.