Exchange Rate Forecasts: The Pound and Euro Could Soon Correct, US Dollar Could be Overbought

Pound Sterling Live brings a selection of the latest technical exchange rate forecasts from thoes big-name analysts we follow for the pound, euro and US dollar.

The current themes to be aware of at the present time concern the rallying US dollar, the slumping euro and a British pound that is trying to re-establish itself from the damaging run up to the Scottish independence vote.

Where are the G3 Rates Now?

At the time of writing the following currency conversion rates are available:

The euro to pound exchange rate (EUR/GBP) is trading 0.17 pct lower on a day-to-day basis having reached 0.7777.
The euro to dollar exchange rate (EUR/USD) is 0.23 pct lower at 1.2602.
The pound to dollar exchange rate is 0.07 pct lower at 1.6202.

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Forecast for the Pound Sterling to US Dollar Exchange Rate

Commenting on the sterling dollar's outlook ahead of the new month are Credit Suisse:

"GBPUSD found further selling interest and has reverted below support at 1.6246. We ideally look for buying here. Near-term resistance shows at 1.6342, with a break above 1.6416/17 required to see a move back up to test the 1.6525 recent high.

"Extension through the latter is needed to look on to price and 50% Fibonacci retracement of the July/September decline at 1.6622/46 where we would expect renewed selling interest."

It is worth pointing out that the US dollar is currently extremely overbought, when such situations occur the prospect of a sharp correction remains real.

In a note to clients Societe Generale point out:

"Last week’s CFTC CME FX positioning data paint a rather mixed picture when looked at individually, but if I add together the net long of all the currencies traded against the dollar, it has continued to build. The net long dollar position on that combined basis is closing in on extreme levels pretty quickly as the dollar index moves steadily higher.

"At the same time, the 7- week DXY RSI is at 95.95, breaking above the 1997 peak and pointing to a seriously overbought dollar position. Or, to put the data another way, the momentum of the dollar’s advance is unprecedented."

Euro to Dollar Exchange Rate Forecast

The euro has been hammered by fresh data showing the Eurozone is falling into deflation.

Core inflation has fallen to a five year low, Eurozone core CPI printed at 0.7% versus 0.9% eyed - well below the ECB's target of 2%.

"Evidence of worsening economic conditions in the euro zone took another heavy toll on the euro which plunged to two-year lows against the greenback below $1.26. The latest dagger came from inflation slowing to a 0.3 percent increase in September, a mere fraction of the ECB’s ideal level near 2 percent," says Joe Manimbo at Western Union.

US Q2 GDP data were revised higher from 4.2% to 4.6% this month, perfectly in line with expectations.

"Even, so the dollar found again a better bid during the US trading session. EUR/USD dropped below the below the 1.27 barrier, but the 1.2662 key support was left intact," points out Piet Lammens at KBC Markets.

Credit Suisse say:

"EURUSD has broken below our core target zone at 1.2787/55 – the 61.8% retracement of the entire 2012/14 bull trend and July 2013 low. We are wary that prices are becoming exhausted near term, and resistance at 1.2785 needs to cap to keep the immediate risk lower to see a direct extension to 1.2662 next, the November 2012 low.

"Beneath here would aim at the 78.6% retracement of the 2012/2014 uptrend at 1.2460. Bigger picture we would see scope for 1.2215/10, and potentially as far as the 1.2042 low of 2012."

Euro to Pound Sterling Forecast

Commentin on the outlook for the euro pound exchange rate Lammens says:

"Short-term, we might see a slowdown in the EUR/GBP decline as the pair is nearing the 0.7755 support . Further down the road, the focus for sterling trading should return to the economic fundamentals and to the guidance from the BoE on policy normalisation.

"After the recent rebound of sterling and the soft comments from the BoE minutes, investors are pondering the chances for further sterling gains. In this respect we look out for the UK PMI’s later this week."