Pound Euro and Pound Dollar Foreign Exchange Rates Forecast to Maintain Positive Near-Term Bias

With Mark Carney telling markets they are behind the curve on the timing of the first rate hike we see expectations for a stronger British pound grow. Expect the US Dollar to remain well supported and the euro to suffer further downside pressure.

For reference, the following day-on-day moves have been witnessed on the weekend:

- The euro to pound exchange rate: Plummeted last night in the wake of the Carney call. EUR/GBP is down to 0.7981.
- The pound to dollar exchange rate: 1.6971.
- The euro to dollar exchange rate: 1.3541.
- The Australian to US dollar exchange rate: 0.9402.

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Forecasting a stronger pound

With interest rate expectations being brought forward, the strenght of the GBP is likely to increase.

Commenting on the outlook, Lloyds Bank tell us:

"Carney’s comments at the Mansion House indicating that UK rates could rise sooner than the markets expect propelled GBP sharply higher, though the 0.80 level in EUR/GBP and within touching distance of the 1.70 level in GBP/USD.

"While Carney provided no detail of how soon rates could rise, it is unlikely that he would have made such a bold statement without a real possibility that rates could rise this year. From here, the 1.70 level is the next target and seems likely to break today. Though moves beyond this may still prove difficult, yield spreads do suggest scope for gains and we would expect the pound to hold above 1.70 by the end of the day."

The pound dollar exchange rate forecast: 'Will Likely Rise'

Citigroup analysts tell us they see the sterling dollar rate heading higher:

"The pound could remain supported after the UK labor market data, suggested that slack in the economy is disappearing. Citi economists continue to expect the BoE to start hiking rates in November – ahead of market expectations at present. On technical analysis, GBP/USD will likely rise toward 1.6996, with support at 100MA of 1.6693."

The euro dollar exchange rate forecast: EUR/USD sees technical breakdown

According to Luc Luyet at Swissquote Research the euro dollar exchange rate faces a bearish outlook owing to the break-down in its technical structure.

"EUR/USD's bullish intraday reversal on 5 June has created a key support at 1.3503. Monitor that level as buying interest has thus far remained weak. Hourly resistances can be found at 1.3602 (10/06/2014 high) and 1.3677.

In the longer term, the break of the long-term rising wedge (see also the support at 1.3673) indicates a clear deterioration of the technical structure.

"The long-term downside risk implied by the double-top formation is 1.3379. Key supports can be found at 1.3477 (03/02/2014 low) and 1.3296 (07/11/2013 low)."

The euro pound exchange rate forecast: EUR/GBP Biased towards the downside

According to the latest studies on the euro pound rate, the pair is still showing a clear bias towards the downside.

ICN Financial tell us:

"The pair is still biased to the downside approaching the main target at 0.8005 accompanied with Stochastic entering oversold areas.

"We eye the upside rebound for the pair to resume the uptrend that was halted for downside correction. The downside bias remains valid until the pair reaches the target, where a breakout below 0.8005 will pressure the pair to extend bearishness toward 0.7755."

The Australian to US dollar exchange rate forecast: Approaching outright bullcase

UBS confirm the outlook for the Australian dollar is looking increasingly bullish:

"Strong resistance focus is at 0.9461. A close above this level will be an outright bullish event. Support is at 0.9319 ahead of 0.9203."

Also emphasising the importance of resistance at these levels is Luyet:

"AUD/USD continues to grind higher. The resistance at 0.9409 is now challenged. A key resistance stands at 0.9461. Hourly supports now lie at 0.9351 (intraday low) and 0.9319 (06/06/2014 low)."

Upside potential in the Aus dollar has however been limited as of late with the observation that net employment in Australia fell by a sizeable figure in May for the first time in five months.

The unemployment rate did however remain at 5.8% for a third consecutive month despite the market anticipating it to go up increase to 5.9%, offering some support and preventing further Australian dollar outflows.