Pound-to-Euro: Bullish Set-Up Signals Friday Will Probably See Pound Bid

The Pound-to-Euro exchange rate has formed a relatively high probability bullish continuation pattern which indicates a better than 50% chance tomorrow (Friday, September 29) will be an up-day.

The set-up backtested on EUR/USD yielded a 66.0% success rate of correctly predicting the next day's activity.

The same is likely to be true for GBP/EUR.

The set-up is incredibly simple: it consists of two consecutive down days occuring in an established uptrend - or in the bearish variation of the strategy - two up-days occuring in an established downtrend.

The pattern occuring today (Thursday) and in previous months is shown on the chart below, it is called "Two steps back one step forward".

The last pattern formed on the 18th and 19th of September when two down-days formed in the midst of an uptrend and they were followed by an up-day: as the pattern correctly predicted.

The example of the pattern before that occurred on the 8th and 9th of August when two up-days formed during a downtrend.

That example of the set-up also correctly predicted the next day would be a down-day as the over-arching trend resumed.

We expect, therefore, that tomorrow, Friday the 29th will be an up-day with an above evens (>50%) certainty, probably even higher, above 60%.

There broader technical backdrop is also supporting more upside as the pair may well have formed a bullish flag pattern last week which suggests substantial further upside on the horizon, please see our week ahead forecasts here for a more indepth explanation.

Just looking at GBP/EUR today, however, we note the presence of resistance at the 1.1475 level, making that a compelling initial upside target for the pair, even if higher rates are achieved afterwards.

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