Euro Exchange Rate: EUR Strength Forecast v Pound and US Dollar

The euro has struggled against both the pound sterling and US dollar in recent months – but now we hear from a number of analysts who suggest things could be about to turn for the shared currency.

The British pound (GBP) is looking overbought against the euro following an impressive period of climbs with the market now looking incredibly stretched.

The question is simple - are there enought buyers of sterling left out there?

Bill McNamara at Charles Stanley says he believes a period of sterling weakness is now due to allow the market to find its balance once more.

At the time of writing the pound to euro exchange rate (GBP/EUR) is seen unchanged on a daily basis at 1.3630 – still the best levels since 2007.

The euro to dollar exchange rate (EUR/USD) is seen 0.07 pct lower on a day-by-day comparison at 1.1353.

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Outlook Suggests Consolidation Ahead

McNamara says:

“The rally relative to the euro continues and, as the chart demonstrates, this ongoing strength has lifted the UK currency back to late-2007 levels.”

Chart courtesy of Charles Stanley

“At the same time it has retraced almost 50% of the decline that began in late 2000 and, as one would expect, this leaves it looking relatively overbought – its 14-week RSI is at 76.4%, its highest reading since mid-2012 – which implies that a period of consolidation might not too far away. In the meantime the bull case remains intact,” says McNamara.

Where is the Euro / Dollar Exchange Rate Headed?

Turning to the euro to dollar exchange rate (EUR/USD) we note the consolidation we are looking for in sterling-euro may have already started in euro-dollar.

McNamara tells us:

“This another chart where the Fibonacci-based retracement grid has identified a potential support level and, in this case, the single currency has now retraced 61.8% of the rally that started in late 2000.

“The evidence of the last couple of weeks is that, despite the major QE package announced by the ECB, it has stabilized somewhat – although it is still too early to suggest that this will develop into actual support (and the recent closing low, at 1.1267, is still not very far away).”

Chart courtesy of Charles Stanley

Euro Exchange Rates Steady

The euro steadied as markets waited on word from Europe over whether Greece’s reform list was enough to secure a four-month extension of its bailout program.

This week’s economic testimony to Congress by the Fed chair may also provide a catalyst for the euro.

“Meaningful upside for the euro should remain a challenge given that Greece’s stopgap debt measure only puts a momentary lid on the nation’s debt woes,” warns Joe Manimbo at Western Union.

Fears of a Greek exit and bankruptcy could flare anew in the months ahead, which could cap interest in the euro.

Numbers from Europe today went unrevised, having little if any impact on the euro.

German growth was confirmed at a solid 0.7% last quarter while euro zone inflation was affirmed at a record matching low of -0.6% in January.

“The euro continues to hold around the most affordable levels in more than a decade for U.S. importers, lower costs that they can preserve with forward contracts,” says Manimbo.