Pound-to-Euro X-Rate Forecast @ 1.18, but Must Clear Key Resistance Point First
The British Pound could be on the cusp of appreciating substantially against the Euro argues technical trading expert Bill McNamara.
The Pound-to-Euro exchange rate has been in recovery-mode since August 29 when it bottomed at a fresh multi-month low at 1.0746, the pair has since risen steadily to reach current valuations of 1.1350.
Sterling is however still not quite able to record fresh multi-week highs towards 1.1432 which were hit back in September. So the exchange rate is hovering just below those highs and this is understandable as according to analysts the exchange rate has reached a formidable obstacle in the form of a long-term major trend-line.
In short - it needs one more push higher to overcome this obstacle and establish an uptrend.
"At current levels the Pound is testing resistance in the form of a downtrend that began around a year ago a close above 1.14 would signal that this trend-line has been broken and that a push back up to 1.18 has become possible," says founder of The Technical Trader, Bill McNamara in a note published October 30.
Interestingly, McNamara suggests much of the recent strength in the pair has been as a result of the Euro weakening rather than strength in the Pound - but this might come to an end on Thursday when the Bank of England meets to set monetary policy, and could very well decide to raise interest rates.
Higher interest rates would typically be expected to lead to a stronger Pound since they attract more inflows of investor capital due to the promise of higher returns. However, readers are advised that a once-off rate rise will not be enough to trigger the kind of break we are mentioning here.
A 0.25% rise in the interest rate to 0.50% is priced-into the market, what traders will be looking for are suggestions subsequent interest rate rises will occur, with at least one needed in 2018.
Taking a more neutral - but still marginally bullish - stance is Lucy Lillicrap, a technical analyst with brokers AFEX, who argues that as along as the exchange rate remains above 1.1150 "further Sterling strength is feasible," but add the proviso that, "the angle of ascent nonetheless remains somewhat erratic."
Our own charts show a bullish propensity short-term due to the formation of a continuation pattern made up of the last three days.
Such a pattern forms when a long up day is followed by a day with a much smaller body, which itself is followed by a long green up day - as shown bordered by the black box on the chart below.
Confirmation of an extension of the uptrend would come from a break above Monday's highs at 1.1372, which itself would trigger a move up to an upside target at 1.1425 where the 200-day moving average is situated and likely to act as an obstacle to further upside.
Analyst Robin Wilkin at Lloyds Bank Commercial Banking is however not convinced Sterling will crack to new highs and sees the Pound’s failure to advance coming from a range of resistance points; while this resistance region holds he advises he is “turning more neutral to bearish the GBP.”
A move back through the 1.13 would suggest to Wilkin that a new high is in place for a move back towards the range lows towards 1.1080.
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Pound Sterling Boosted by Barnier News
Above: Michel Barnier (C) European Commission.
Pound Sterling caught a bid on Tuesday, October 31 on news that the EU's chief Brexit negotiator Michel Barnier said that he was ready to speed up talks with the UK.
Barnier said that the agenda and dates for the next round of Brexit talks would be set "in next few hours or days" according to a report carried on the Reuters newswire.
The UK had been seen urging Brussels to increase the tempo of talks by engaging in more face-to-face meetings to speed up the Brexit process and avoid a no-deal situation.
Markets are bidding Sterling as they believe the threat of a no-deal has been reduced, however slightly.
Following the news, the Pound-to-Euro exchange rate was seen trading higher at 1.1380 having been as low as 1.1330 earlier in the day.
The Pound-to-Dollar exchange rate was seen higher at 1.3246 having gone as low as 1.3191 earlier in the day.
“We still forecast Sterling at $1.38 end-year ($1.40 end-2018). This may seem a stretch, but current levels ($1.32) encompass much bad news and any positive Brexit developments should support the Pound,” says Victoria Clarke, Economist with Investec in London.
Investec are forecasting the GBP/EUR to end 2017 at 1.15, where is expected to hover for the duration of 2018.
