Pound Euro Traders Forecast Further GBP Gains in Near-Term

Despite a recovery by the euro exchange rate complex through November we note many analysts and traders continue to favour sterling over the shared currency into the year-end.

That said the EUR does continue to show a degree of resillience and could well surprise with fresh bouts of strength.

Currency markets appear to have priced some risk of further ECB easing or some ‘signal’ of upcoming measures to have been announced at the December policy meeting held on the 4th of the 12th.

With the ECB failing to deliver anything new a modest recovery in the euro exchange rate complex ensued:

• The pound to euro exchange rate (GBP/EUR) is at 1.2689.
• The euro to pound exchange rate (EUR/GBP) is at 0.7890.

NB: The above quotes are taken from the wholesale market and your bank will affix a spread at their discretion. However, an independent FX provider will guarantee to undercut your bank’s offer, thereby delivering up to 5% more currency.

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"What a difference a day makes. A positive week for sterling which had seen it make gains, especially against the euro where it had hit a three week high on Wednesday, went into reverse on Thursday as the European Central Bank confirmed that they were going to sit on their hands until the New Year with regard to quantitative easing. This highlights how quickly sentiment and exchange rates can change especially in the build up to Christmas," notes Carl Hasty at Smart Currency.

The Outlook for the GBP to EUR

The picture for this currency pairing in the mid-term is quite clear as the following screen-grab points out:

We can see a sideways action with a number of contestable maximums, however the ultimate limit appears to be 1.28.

What is clear is the minimum beyond which traders are unwilling to let the GBP/EUR fall below.

We were convinced that the latest upmove was on course to test the best levels of 2014 just above 1.28 owing to the strong momentum built after the release of the Services PMI data at the start of December.

However, the December ECB meeting delivered no new surprises and markets have rushed to top up their exposure to the euro.

We reckon any break higher is unlikely until 2015.

What the Pro's Are Saying

Looking at the latest market chatter concerning the euro vs pound (Note we have swun the equation from GBP/EUR to EUR/GBP for the sake of further technical analysis).

• Sean Lee at ForexTell says he is confident the euro will break lower against the pound sterling:

"I’m still short of this pair and happy to stay that way. Obviously, based on the reaction to the ECB overnight, the short-term market was overly short EUR at the wrong levels and got caught out by some illiquid conditions. Nevertheless the fundamental view for the EUR heading into 2015 is bearish. A quick look at the EUR/GBP daily chart shows broad consolidation between .7825/.8025 and I’m still strongly of the view that this will resolve itself in an aggressive bearish break to sub-.75 levels early next year."

• Piet Lammens at KBC Markets is confident the euro will see any strength remain limited:

"After the rebound (on the 4/12) the short-term downward momentum in EUR/GBP is a bit broken.

"Even so, we don’t see that much upside. As is the case for the Fed, the BoE minutes might indicate that the majority of the BoE is coming closer to hit the start of normalisation somewhere in the middle of 2015. This should provide decent support for sterling against the euro. We don’t see much reason for a sustained rebound back beyond 0.80."

• According to technical analyst Luc Luyet at Swissquote Research:

"EUR/GBP bounced sharply yesterday. However, the declining channel is intact and continues to favour a bearish bias. Hourly resistances stand at 0.7941 (02/12/2014 high, see also the declining channel) and 0.7977. Hourly supports can be found at 0.7886 (intraday low) and 0.7833.

"In the longer term, the major support area between 0.7755 (23/07/2012 low) and 0.7694 (20/10/2008 low) has held thus far. However, a decisive break of the resistance at 0.8034 (25/06/2014 high, see also the declining channel and the 200-day moving average) is needed to confirm an improving technical structure."