Pound Enters Bullish Territory Against the Euro After Piercing Major Trendline
Pound Sterling shot higher versus the Euro on Wednesday morning after the release of better-than-expected economic data from the UK.
The Pound to Euro exchange rate rose towards the 1.17 round figure and in the process shifted the structure of the market into a more positive environment which we believe could yield further advances.
Specifically, bullish signs on the weekly charts furnish a positive backdrop biasing the outlook to further upside.
This has propelled a resumption of the short-term uptrend - in place since mid-March - after a brief two-day respite.
There is a higher than ‘evens’ chance that today will end above its open level of 1.1648 due to research which shows that two down days during an uptrend are more often than not followed by an up-day – as Wednesday is indeed turning out to be.
Major Trendline Pierced, Advocates for Further Upside
This break higher may be more significant for another reason too.
It means this week’s bar on the weekly chart has now pierced through a major trendline drawn down from the November 2015 highs.
Such a break marks a significant change in the status of the trend.
If the break holds it could be the signal a new uptrend is beginning.
Triangle Pattern
A clear triangle pattern is also evolving on the weekly chart.
The pattern appears to have formed five component waves, which is the minimum number to signal the completion of a triangle.
We are currently completing wave-e.
Once wave-e has finished the triangle will probably breakout – either higher or lower, however, if the aforesaid break above the trendline holds, the triangle will almost certainly break higher too.
Wave 'e' structures have a tendency to overshoot the upper border even if they don’t end up continuing higher, and so to mitigate against a false breakout we advocate waiting for confirmation from a move above 1.1950 for confirmation.
Such a move would be likely to reach a minimum target at 1.2400.
Sterling caught its first tailwind of the month thanks to data showing the fastest growth in three months for a sector of the U.K. economy that matters most.
An important predictive indicator for the UK economy, the Services sector Purchasing Manager’s Index showed a much better-than-expected rise to 55.0 than the 55.5 expected; it was the highest reading in 2017..
"Upside for the Pound could prove limited ahead of more big ticket U.K. numbers in the days ahead on trade, due Friday, and next week when inflation and unemployment print on Tuesday and Wednesday, respectively," warns analyst Joe Manimbo with Western Union.
