EUR-GBP Still Caught in a Long-Term Downtrend

The pound sterling has performed well against the euro over the course of the past 6 trading sessions, falling in line with 2015 forecasts that favour GBP strength.

“Trend momentum studies are bearish across a range of timeframes, suggesting that lower levels - a resumption of the broader bear move - are very likely at this point." - Shaun Osborne at TD Securities.

What does the outlook hold for the euro to pound sterling exchange rate? We hear from a number of analysts who have stepped forward to give their forecasts as to likely direction.

At the time of writing the euro to pound exchange rate (EUR-GBP) rate is quoted at 0.7236, 0.16 pct lower on a day-to-day comparison.

Note that all FX quotes in this piece reference the wholesale markets rates - your bank will affix a discretionary spread to this wholesale rate to derive their profit. However, an independent FX provider will undercut your bank's offer, this can deliver up to 5% more currency in some instances, learn more here.

The Outlook for EUR v GBP

Fundamentals

This week there are two key data releases that will be key to the British pound’s outlook; inflation data on Tuesday and unemployment data on Friday.

The inflation data came in on par, but the core component of inflation was shown to have fallen faster than expected. This saw sterling ease back on recent gains.

Expect to hear commentary concerning the impact the May 7 General Election will have on the UK currency. We have just heard from John Wyn-Evans at Investec who has done a sector-by-sector breakdown of how various outcomes will impact on sterling and other financial assets.

With regards to the euro, “for the most part, euro investors are still focusing on whether Greece will be able to reschedule their debt with their lenders or have to default. A key date is this coming Friday,” says Carl Hasty at Smart Currency Business.

As we report here though, it would seem that the difference in yield levels delivered by US bonds and German bonds is the key driver of the euro dollar exchange rate.

The euro v pound is taking much direction from the euro v dollar at present and market watchers should keep an eye on the continuing discussion over when the US central bank will raise interest rates.

During the week we have a raft of data releases; industrial production tomorrow, trade balance figures on Wednesday and inflation data on Friday.

Technical Forecasts for EUR-GBP

• Luc Luyet at Swissquote Bank in Geneva:

“EUR/GBP is testing the low of its horizontal range defined by the support at 0.7228 and the resistance at 0.7385. An overall short-term bullish bias is favoured as long as the low of this range holds.

“Another support can be found at 0.7154.

“Hourly resistances can be found at 0.7278 (09/04/2015 high) and 0.7315 (08/04/2015 high).

“In the long-term, prices are in an underlying downtrend. However, the potential successful test of the key support at 0.7089 (03/12/2007 low) and the general oversold conditions suggest a limited medium-term downside potential.

“A key resistance lies at 0.7592 (03/02/2015 high).”

• Karen Jones at Commerzbank:

“EUR/GBP held sideways at the end of last week and it is possible that this is nothing more than an ‘a-b-c’ correction.

“The market has recently again been rejected by resistance offered by the March peak at .7385 and the .7408 January – this is expected to cap.

“But has yet to effectively take out the recent low at .7223. We suspect that this together with the .7200 region may hold. Another potential support level is the March 19 low at .7155.

“Only if a rise and daily chart close above the .7408 January low were to be made, would we have to allow for further upside towards the .7500 region to be seen.”

• Shaun Osborne at TD Securities in Toronto says:

“EURGBP’s trend decline moderated through late March but the cross looks to have set a short-term (at least) top near 0.74, with recent gains capped by retracement (38.2% Fibonacci of the 0.80/0.70 drop) and channel resistance.

“Weekly price signals suggest a bear reversal and daily patterns imply a short-term double top formed at 0.7392; a break under the neckline trigger (0.7224) targets a drop to 0.7060/65 on a 1-2 week view.

“Trend momentum studies are bearish across a range of timeframes, suggesting that lower levels - a resumption of the broader bear move - are very likely at this point. Look to fade limited counter-trend corrections.”