British Pound Jumps into the Weekend: Sterling up vs Euro and US Dollar on Technical Considerations, Here are the Next Targets

  • Pound to Euro exchange rate today: 1 GBP = 1.0968 EUR, up 0.65% on the day
  • Euro to Pound Sterling exchange rate today: 1 EUR = 0.9118 GBP
  • Pound to Dollar exchange rate today: 1 GBP = 1.3189 USD, up 0.67%

Pound Sterling has hit a fresh five-week high against the US Dollar ahead of the weekend while alsorecording a solid bounce against the Euro, 24 hours after the drop experienced in the wake of the European Central Bank's policy update.

In fact, gains for the UK currency appear broad-based.

Solid gains are coming against the Canadian Dollar and South African Rand - both currencies had recorded significant advances against Sterling earlier in the week.

There are no explicit headines behind the move, so what could the drivers be?

Some media outlets are suggesting that it might be the data released earlier in the day - but they are wrong and simply looking to attach an event to an exchange rate move. Indeed, as we note here, the trade statistics bode ill for Sterling longer-term.

"There were again plenty of headlines on the stalemate in the Brexit negotiations and the UK eco data calendar was well filled. However, those topics played no important role in Sterling trading," notes Piet Lammens, an analyst with KBC Markets in Brussels. "For now, sterling shows good resilience in an overall very uncertain context."

The Pound's bounce appears technical in nature; recall the mid-week technically-inspired rally in the Pound?

We reported that the Pound has been enjoying some gains as negative positioning against the under-fire currency is unwound and this appears to be the case ahead of the weekend. The Pound is heavily oversold in technical - and indeed fundamental - terms and profit-taking on the move appears to be underway.

With technical considerations driving Sterling, it will be to technical analysts that we turn in order to gauge potential targets for the current rebound.

Technical analyst Karen Jones at Commerzbank believes the near-term picture favours the Pound.

"EUR/GBP held steady yesterday post-ECB, but having recently severed its accelerated uptrend, the damage has been done near-term," says Jones.

"Currently intraday rallies are indicated to terminate circa 0.9210 and while capped here the market will remain directly offered," adds the analyst.

This suggest weakness in the GBP/EUR should find support at 1.0858.

The Commerzbank technical strategist believes the market remains likely to react back to the 23.6% retracement at 0.9075 and the four month support line at 0.9037. (This is GBP/EUR at 1.1019 and 1.1065).

But, "the longer term up-move remains intact above here," says Jones hinting at the overall dominance of the Euro's trend which should ultimately restart in coming days or weeks.

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"On the widespread weakening of the Dollar, and as a result of the positive correlation with the Euro, Sterling rose further, setting a new high today against the dollar in the GBP/USD 1.31 area," says Asmara Jamaleh at Intesa Sanpaolo.

Indeed, the US Dollar has endured its worst week since June. 

The Pound/Dollar exchange rate is now expected to extend higher on the positive momentum.

"With the broad USD under pressure, this rate is getting dragged higher. We have rallied through 1.3080 resistance and so now focus on 1.3160/70, which is the last main resistance ahead of the highs at 1.3270," says Robin Wilkin, a technical analyst with Lloyds Bank Commercial Banking.

The analyst says a break of 1.3040/1.3000 is needed to suggest the lower high we are looking for is in place.

"Once confirmed we look for a move back towards 1.25 medium term range support. A move up through 1.3170 and 1.3270 would risk a move towards next resistance around 1.3500," says Wilkin.

The climb in GBP/USD comes amidst an environment in which the US Dollar is trading notably lower as markets continue to discount the prospect of further interest rate rises at the US Federal Reserve longer-term.

Indeed, analyst George Saravelos at Deutsche Bank reckons that the "Dollar is in trouble".

The FX strategist tells clients that the Fed is likely be ineffectual in stimulating Dollar demand over coming months as it ponders soft US inflation rates at a time that the leadership is replaced.

Next year sees fresh faces join the Fed's FOMC, and Saravelos reckons they will be wary of hiking interest rates.

Furthermore, Americans are tipped to increase their investment exposure to global assets having been notably underweight on international investments for years now.

This massive flow of capital out of the US will put the Dollar under pressure.

“We struggle to identify conditions that would sustainably shift the dynamics described above and would not fade recent Dollar weakness,” says Saravelos.