Case for Euro to Advance Further on Pound Sterling is Growing says Hantec's Perry

The Euro to Pound Sterling exchange rate (EUR/GBP) has risen by 1.66% over the course of 2017 as the Euro starts to pick up a head of steam.

The Euro’s newfound advantage has seen it break out of a relatively benign range that has made forecasting the exchange rate relatively difficult to call.

The top of the range is defined by £0.885 (or a bottom of €1.1299 if you are looking at GBP/EUR). The bottom is seen at £0.83 (or a top in GBP/EUR at €1.2048).

“Every time it has looked as though a decisive move was forming within the range, a reversal has been seen,” opines Richard Perry, an analyst with Hantec Markets.

However with the Euro-bulls having taken control in the last couple of weeks Perry notes there has been a another decisive shift once more within the range.

“The rebound has now pushed above what had become a pivot over the past few months with a range £0.8590/£0.8600 which had previously been holding the market back last week,” says Perry.

Perry is becoming increasingly confident in the Euro’s ability to push higher against the Pound, and in doing so joins a list of names that have started recommending a buy on the Euro.

“With yesterday’s strong bull candle, in clearing this pivot that has been in place since mid-February, the market is opening the resistance form the highs of March (£0.8787) and January (£0.8853),” says Perry.

Perry is a technical analyst and uses the structure of the EUR/GBP’s historical chart to give him some guidance on the potential direction Sterling might take from here.

Charts tend to give good clues on how the market is structured, i.e where the buying and selling interest lies and it gives views into whether trends are likely to extend or fail and what he is seeing is a picture that suggests the Euro is starting to find its legs once more.

“The momentum indicators are increasingly strong with the RSI into the mid-60s, the MACD lines rising above neutral and the Stochastics also positively correlated,” says Perry. “This looks to be a move that the bulls are backing.”

Last week’s breakout above £0.8530 completed a near term base pattern implying between 150/210 pips of upside meaning a target range of £0.8680/£0.8740.

For those looking at this from a Pound to Euro exchange rate angle, the target mentioned above equates to 1.1521 and 1.1442.

This recovery target has the market testing the next key resistance of £0.8735 (€1.1448).

“Corrections are increasingly being bought into, with the £0.8600 pivot now a basis of support, whilst £0.8530 is now key,” says Perry.

Support implies there is a strong region of buying interest in the Euro around £0.86 with traders believing the shared-currency to be too cheap at this level.

From a GBP into EUR perspective this equates to a resistance level of €1.1628 which the Pound might struggle to advance above.

Also bullish on the Euro against the Pound is David Sneddon at Credit Suisse who also consults the charts to call direction in the foreign exchange markets.

At the time of writing EUR/GBP is seen correcting lower as it consolidates recent gains, "however with a base in place we remain bullish," says Sneddon in a note dated May 24. 

The setback facing the Euro in the mid-week session is forecast to be short-lived and the Euro should ultimately break above £0.8677 to test potential trend resistance at £0.8713 which is expected to provide some tough resistance.

"We would expect an initial cap at the latter level, but above can then look on to the March 2017 peak at £0.8790," says Sneddon.

Turned around to GBP/EUR, the above targets are €1.1525, €1.1453, €1.1377, respectively.

Moving through the mid-week session we note the Euro has faded some of its recent gains with EUR/GBP down in sympathy with the headline EUR/USD exchange rate.

Analysts have commented that EUR/USD's run higher is looking extended, and the potential for a pullback is growing.

"EUR/GBP stalled yesterday, along with EUR/USD. it s unlikely that we will hear anything hawkish at all from Draghi or Praet today, and with the market now bullish and long of Euros, perhaps there's room for a bit more of a downward correction," says analyst Kit Juckes with Societe Generale in London.

That said, Juckes remains bullish on the Euro's prospects and the next few weeks could see a push on towards the top end of the 2-year EUR/USD 1.04-1.16 range.

This will in turn provide the EUR/GBP with further upside traction.