Pound Euro Exchange Rate Reaches 1.33 Barrier, Best GBP/EUR Since 2005

The pound sterling (GBP) continues its surge against the euro as we head into the weekend. How much further can this battering go?

The pound to euro exchange rate is currently quoted at 1.3332, smashing even the most optimistic forecast for 1.3335 for year-end made by Barclays.

So, with predictions being smashed, how much further can this rally last?

We note that from a technical perspective there is actually very little lying ahead that would offer itself as a resistance point to further gains.

The reason is that we are witnessing the best levels in the euro since 2005 - the gap in times offers little valuable technical indication to us today.

Now GBP/EUR is Overbought Near-Term

At the present time we note the GBP/EUR charts are screaming overbought conditions.

The RSI reading (the bottom line) is now well over the oversold indicator located at 70.

This tells us that we are in either a lasting uptrend or the instrument is overbought.

Be aware that sharp declines could transpire in coming days as the market runs out of buyers.

That said, if we look at longer-dated charts we note that there is a great deal of upside on offer from an historical perspective.

It looks like the big event for GBP/EUR was the 2008 financial crisis that saw the sterling euro fall from its historical long-term trend located above 1.4.

Price action since the lows near parity has been a story of recovery to these levels.

For those who are able to wait we see no reason why the 1.4 level cannot be reached in the next two years.

Eurozone Quantitative Easing Paves the Way for Lower Euro

The big issue at the current time concerns the 1 trillion euro's worth of currency that will be created at the European Central Bank (ECB) over the course of the following two years.

Such a massive expansion of the monetary base in the Eurozone will have the predictable impact of lowering the value of a currency. As with everything in life - the more you get the lower its valuation falls.

Commenting on recent pound euro action is Raphael Sonabend at currency brokerage CaxtonFX:

"Draghi’s speech saw the euro plummet against the pound and this pair managed to breach 1.323 in this morning’s session. With the Greek elections coming up on Sunday, we anticipate another day of volatility, possibly with the pound covering more ground against the euro.

"Draghi’s words promised a larger-than-expected stimulus plan, whilst compromising with Germany so that central banks would bear the risks that this plan could present."

Don't Catch the Falling Knife

Wise words from KBC Market's Piet Lammens this morning concerning how to approach the euro exchange rate complex in the current environment:

"We don’t try to catch the failing knife of EUR/USD even as technical indicators suggest that the pair is heavily overbought. A lot of investors are probably still wrong-footed by speed of yesterday’s decline. So they will try to limit the damage in case of an uptick."

EUR/USD to Fall Below Parity?

Meanwhile we hear from one forecaster that the euro dollar could fall below parity. Shaun Osborne at TD Securities tells us:

"We had thought that EURUSD’s decline through the 1.21/1.22 support zone late last year heralded and extension of the broader, bear trend towards 1.12 (61.8% retracement of the 0.82/1.60 rally).  

"The only thing that might slow the EUR decline from here (briefly) is a short-term corrective bounce in the next 1-2 big figures.  

"EURUSD is down more than 10% in the past three months and 10-12% declines over three month periods since 1999 have frequently proven to be about as much of a move as can be sustained before a correction sets in outside of a major dislocation in markets (2008).  Any near-term rebound would be merely corrective though and would represent a selling opportunity."

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