Exchange Rate Forecasts (UPDATED): Pound Sterling, Euro, US dollar, Australian dollar, Japanese Yen

By Rob Samson

Short-term exchange rate forecasts issued for the week beginning 17th February 2014.

The British pound and Australian dollars were two of the foreign exchange markets top performers over the course of the previous week.

This momentum will likely ensure the two currencies are underpinned this week. However, there is a significant amount of event risk due, as mentioned in Monday's live coverage.

With what promises to be a volatile week ahead for the major currencies we follow, market participants would do well to consider the following levels.

Pound dollar exchange rate forecast

20/02: MIG Bank: "GBP/USD has broken the key resistance at 1.6668 (24/01/2014 high). The current consolidation near this level suggests a shortterm pullback. A break of the resistance at 1.6742 would confirm a resumption of the underlying uptrend. Hourly supports can be found at 1.6637 and 1.6600 (see also the rising trendline). Another resistance stands at 1.6823.

"In the longer term, the technical structure favours a bullish bias as long as the support at 1.6220 (17/12/2013 low) holds. The decisive break of the resistance at 1.6668 opens the way for a move towards the major resistance at 1.7043 (05/08/2009 high). However, a sustainable move above that level is unlikely in the next few weeks."

17/02: Craig Erlam at Alpari UK:

"The last week was very positive for sterling, rallying 350 pips against the US dollar and forming an almost perfect marabuzo candle on the weekly chart. A gap higher over the weekend added to this bullish tone but that gap has been quickly closed and we’re now seeing it pare some of last week’s gains. It’s not unusual to see a correction in the pair after such a strong week, so I wouldn’t be surprised to see some weakness in the next couple of days.

"The key level will now be 1.6571, the marabuzo line of last week’s candle. A failure to close below here would essentially confirm that we’re seeing a correction and would likely prompt another push higher. Overall, the pair is looking quite bullish and having made a new 51-month high, the next target will be 1.6876 followed by 1.70."

UBS: "Further support developed as the pair advanced sharply and is trading within striking distance of resistance at 1.6878. A break above which would open critical 1.7043. Support is at 1.6645."

Euro pound exchange rate forecast

20/02: MIG Bank: "EUR/GBP is bouncing near the support at 0.8160 (see below). However, the resistance at 0.8254 (50% retracement) has held thus far. Hourly supports lie at 0.8217 (intraday low) and 0.8191 (18/02/2014 low). Another resistance stands at 0.8280 (06/02/2014 low).

"In the longer term, the technical structure remains negative as long as prices remain below the resistance at 0.8350 (13/01/2014 high). Monitor the support implied by the 61.8% retracement (of the 2012-2013 rise) at 0.8160. Another key support can be found at 0.8082 (01/01/2013 low)."

17:02: UBS: "Further selling this morning has seen the cross trade below critical support at 0.8160. A close below which would be next bearish event, triggering a sell-off to 0.8082. Resistance is at 0.8227."

KBC Markets:

"The jury is still out. This week’s UK eco data might decide whether the time is already ripe for a next up-leg of sterling. Even as we have a sterling positive bias longer term, we stay a bit cautious short-term as the UK data might be slightly less strong than in the recent past. We keep a sell-on up-ticks bias."

Euro dollar exchange rate forecast

20/02: MIG Bank: EUR/USD has broken the key resistance at 1.3739, opening the way for a move towards the resistance at 1.3819. Hourly supports can be found at 1.3692 (see also the short-term rising channel) and 1.3657 (intraday low, see also 38.2% retracement of the rise from 1.3477).

The break to the upside out of the medium-term horizontal range between 1.3477 and 1.3739 indicates a persistent buying interest.

In the longer term, we favour a broad horizontal range between 1.3296 (07/11/2014 low) and 1.3893 (27/12/2013 high).

17/02: UBS: "Any further recovery will find resistance at 1.3739. A close above this would be a bullish development opening the way to 1.3893. Support is at 1.3562 ahead of 1.3477."

Craig Erlam at Alpari UK:

"The euro is trading flat against the dollar at the start of the week, although the gap higher over the weekend has given it a slight bullish tone. The pair still hasn’t managed to break above 24 January highs and is therefore still technically in a downtrend, but there are signs that this could change in the coming days. That said, the pair also hasn’t yet broken above 1.3733, the 61.8% retracement of the move from 27 December highs to 3 February lows, so this still looks like a retracement.

"We’ve also just seen a bearish engulfing pattern on the 4-hour chart which suggests we’re going to see further selling as the session goes on. The first major test here will come around 1.3682, a previous level of resistance that will now be tested as a new level of support. If the pair fails to break this level it would again create new higher lows for the pair which would add further weight to the shorter term uptrend and lead to further pressure on those previous highs. While it’s not obvious where this pair is headed in the medium term, based on where it is currently trading I think this should become much clearer in the coming days."

KBC Markets:

"At the end of last year, EUR/USD held in a rather tight range (1.3650/1.3893) within reach of the 2013 top. The Fed’s tapering of asset purchases was only a limited support for the dollar. The Fed convinced markets that a “real” tightening of monetary policy is still far away. At the same time, the market was not impressed by the ECB’s easing bias. At the start of this year, EUR/USD dropped below 1.3625, indicating a loss of momentum.

"Expectations for more ECB easing pushed EUR/USD below the 1.3508 correction low. However, a sustained break didn’t occur. Draghi’s comments at the February press conference and disappointing US payrolls sent EUR/USD back in the recent range. We maintain a cautiously negative bias LT. The ST momentum is neutral."

Australian dollar forecast

20/02: MIG Bank: "AUD/USD is weakening after having successfully tested the key resistance at 0.9086. Hourly supports stand at 0.8928 (13/02/2014 low) and 0.8874. Another key resistance can be found at 0.9168 (02/12/2013 high).

"The long-term technical pattern is negative and favours a further decline towards the key support at 0.8067 (25/05/2010 low), as long as
prices remain below the resistance at 0.9168 (02/12/2013 high, see also the 200 day moving average).

17/02: Lloyds Bank:

"Following weak employment numbers last week, AUD/USD declined sharply, however, this was short-lived. The RBA minutes released early tomorrow morning may attract some market interest after the RBA shifted towards a neutral policy stance at its meeting earlier this month. However, we expect the minutes to largely reiterate key messages from the accompanying statement, with the tone likely coinciding with the recent upwards revisions to the growth and inflation outlook. We expect this will support further AUD/USD upside."

UBS: "The important resistance is at 0.9086. A close above this will be a major bullish event, opening the way to 0.9209. Support is at 0.8928."

Dollar Yen forecast

Craig Erlam at Alpari UK:

"The dollar retracement appears to be continuing against the yen, with the pair having faced strong resistance around the descending trend line, which dates back to 23 January highs.

"If the retracement continues, the next big test for the pair will come around 100.75, 4 February lows. A break below here will create lower lows again, prompting a move back towards the 200-day SMA around 100.15. This has been a key support level for the pair during its ascent so it wouldn’t be a surprise to see the same happen again.

"That said, a failure to break below the 4 February lows could bring about the continuation of the longer term uptrend, starting with the formation of a double bottom. As has been the case for a long time, the consensus in the market is that the long term uptrend in the pair will continue, the only question now is when it will bottom out."

UBS: "The risk appears to be extension of the consolidation phase. Critical resistance is at 142.08. Support at 138.26 ahead of 136.23."