The GBP/EUR Exchange Rate Technical Forecast for March

Pound Sterling might have lost a little positive momentum against the Euro over recent days but from a technical perspective it remains in recovery mode against the Euro when we consider the multi-week timeframe.

We note that while fundamentals point to a looming recovery in the Euro towards the second-half of 2017 our studies of the monthly charts suggest the possibility of more GBP/EUR upside in the medium-term which more or less incorporates the next month.

Studies of the monthly chart shows the RSI indicator - seen in the bottom pane - of the chart below illustrates the point.

Note the steepness of its reversal and inflection off the oversold low.

This steep recovery in the RSI - which is a momentum indicator - is more often than not a signal of the start of a new uptrending period for the exchange rate.

It corresponds with the strong upmonth in November 2016.

The high political risk in the Eurozone expected over 2017 could be the cause of considerable weakness for the Euro.

Meanwhile, some have also argued that the ‘worst’ Brexit scenario has already been priced into the Pound and it cannot weaken substantially more than it has.

This would suggest a fundamental underpinning for our technically bullish view.

The exchange rate is currently pushing up against a multi-month trendline drawn from the late 2015 highs, however, it looks likely to pierce above the trendline.

Such a move would be a very strong bullish sign and indicate substantial gains on the horizon, with an upside target situated at around 1.2500, calculated by extrapolating the move up prior to the trendline break above the break.

Weekly Chart Also Supportive

The weekly chart reveals a possible bullish reversal pattern at the lows which could further support an upside-biased view for the pair.

The pair may have formed an inverse head and shoulders reversal pattern which is made up of three lows, with the middle trough being the deepest – the head – and the two adjacent troughs either side, the shoulders.

The pattern has a neckline at the peaks made in-between the three troughs and when this is broken the exchange rate is forecast to move higher to a target roughly the same height as the pattern extrapolated higher from the break.

If the pair breaks above the neckline and the trendline it will provide confirmation of more upside and probably lead to a move up to a target at 1.2500.