Pound Euro Exchange Rate (GBP/EUR) Forecast: Are There More Gains Ahead?

At the time of our last update to this article the following rates are on offer for the sake of reference:

• The pound to dollar exchange rate is at 1.7058.
• The pound to euro exchange rate is 0.13 pct higher at 1.2534.
• The pound to Aus dollar rate is 0.36 pct higher 1.8139.

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Is the pound sterling overbought now?

The GBP is susceptable to short-term selling pressure with traders tempted to unwind long positioning on the currency after a good run higher.

In the mid-week session a number of factors trigger such unwinding, including weak inflation data, a less-than-hawkish Bank of England Minutes and on Thursday the release of below-par retail sales data.

However, none of this is enough to undermine the fact that the Bank of England is likely to start cutting rates a whole lot sooner than other central banks. We forecast that this will ultimaely keep the GBP on the front-foot in the longer-term.

Earlier in the week we warned that the pound euro exchange rate's daily charts (Seen at top) confirm the Relative Strength Index (RSI) to be reading at 83 - we have not seen such overbought conditions in well over a year and the logical assumption is that a correction lower will ultimately transpire to return the pair to more sustainable levels.

Nevertheless, underlying technical studies suggest the GBP to EUR will ultimately head higher.

A rising channel has been in place since March 2013 and with the pair currently at the top end of the channel we have no reason to question the potential for further gains at this point.

Pound dollar exchange rate forecast: $1.70 barrier to break this week?

Tony Wilson, head of strategy at the foreign exchange specialists FEXCO, comments:
 
"If ever there was a week for Sterling to definitively break through the symbolic $1.70 barrier, this is it.
 
"The Pound briefly crept over the mark in early hours trading today, but it was all over in a matter of minutes. Yet Sterling's momentum means there's a good chance it will soon rise above $1.70 and stay there.
 
"The clamour around interest rate rises is now a cacophony - with the markets now expecting them to start later this year.
 
"Last week Bank of England Governor Mark Carney surprised many with his most explicit warning yet that the base rate will creep up sooner rather than later.
 
"Many in the markets are betting that the Bank's Monetary Policy Committee is steadily turning hawkish, and that the committee's latest minutes - due to be released on Wednesday - may even show some members voting for an immediate rate hike.
 
"With the rate rise drumbeat getting steadily louder and Britain's economy powering ahead, sustained demand for Sterling is pushing the Pound up into territory not seen for nearly five years."

Euro dollar exchange rate forecast: Critical support at 1.3248

The team at UBS continue to warn of bearish conditions for the euro dollar rate ahead saying:

"With the trending and momentum indicators pointing lower, there’s risk
for a break through support at 1.3477 and then onto test critical support at 1.3248.

"Resistance is at 1.3600 ahead of 1.3690."

Australian dollar forecast: Initial cap towards 0.9440

According to Emmanuel Ng at OCBC Bank, the prospects for the Aus dollar are positive:

"Dip-buying may persist for the pair ahead of the RBA meeting minutes and especially with G10 central banks increasingly polarised by perceived widening in monetary policy stances.

"Notably, the slightly supportive data stream out of China late last week may also continue to impart investor confidence.

"On the CFTC front, leveraged AUD longs accumulated further on the latest week, and this should continue to keep near term prospects for the pair constructive.

"Expect initial cap towards 0.9440 while support may emerge on dips towards 0.9350 intra-day."