Pound Forecasts v the Dollar and the Euro: Strength Ahead
It looks as though the British pound may be succeeding in its quest to create a more sustained recovery against the US dollar.
Positive moves against the euro also continue and a number of new forecast notes suggest more gains lie on the horizon.
At the time of writing the British pound to dollar exchange rate (GBP-USD) is higher at 1.5040 following an impressive run on the back of the mid-week release of the Bank of England MPC's April minutes.
Also higher is the pound to euro exchange rate (GBP-EUR) is at 1.4013. Turning the equation around, EUR-GBP is at 0.7190.
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Forecast for the Pound v Dollar
Interest in the USD has waned of late with an overbought market finally catching up with itself.
This has allowed the British pound to sneak back into contention with any good news allowing buyers the space to carry the currency higher.
"GBP/USD continues to rise and is now close to the key resistance area between 1.5137 and 1.5166," says analyst Luc Luyet at Swissquote Bank referring to the levels that may halt further gains.
If they can be broken then the path higher is opened. A break of the key resistance at 1.5166 (the 18/03/2015 high) is needed to invalidate the longer-term negative scenario that has plagued the GBP-USD pair over recent months suggests Luyet.
Those hoping for a stronger pound sterling should be aware that the bigger remains one of GBP weakness against the USD.
“In the longer-term, the break of the strong support at 1.4814 opens the way for further medium-term weakness towards the strong support at 1.4231 (20/05/2010 low)," says Luyet.
Karen Jones at Commerzbank meanwhile confirms that any strength in the pair should be viewed as correctional in nature:
“GBP/USD’s rally has faltered just ahead of the 55 day ma at 1.5059 and eased back.
“While above the 20 day ma at 1.4834 we will give the upside the benefit of the doubt and allow for scope for a retest of the 2014-2015 downtrend at 1.5166, where we look for the market to fail.
“We view this move higher as a correction only. A close above the 1.5166/86 downtrend and Fibonacci retracement would at least temporarily halt the bear trend and introduce scope to 1.5550/70 zone, this is the February high and the 38.2% retracement of the move down from the July 2014 peak.
“Our longer term target remains the 1.4291/29 area – this is where the 78.6% Fibonacci retracement of the 2009 uptrend meets the 2010 low.”
It is interesting to note that this is also a support line extending back to 1985.
Euro to Pound Sterling Exchange Rate Forecast
It is against the euro where we fancy the pound's best chances of advancement.
EUR/GBP has broken to the downside out of its horizontal range defined by the support at 0.7228 and the resistance at 0.7385.
The Swissquote currency forecast says:
“The potential double-top formation favours a short-term bearish bias. An hourly support can be found at 0.7164 (16/04/2015 low).
“An hourly resistance stands at 0.7278 (09/04/2015 high). In the long-term, prices are in an underlying declining trend.
“However, the potential successful test of the key support at 0.7089 (03/12/2007 low) and the general oversold conditions suggest a limited medium-term downside potential. A key resistance lies at 0.7592 (03/02/2015 high).”
But, beware an extension of the recovery move made by the shared currency as of late.
Sean Lee, a professional currency trader has meanwhile told followers of his Forextell service that he is readying to profit on a squeeze higher by the euro against the British pound.
In his latest update on the EUR-GBP pair he says:
“Market is short and bearish of EUR but we could see a nasty squeeze heading into the UK election. I prefer to look for dip-buying opportunities and will add aggressively if it starts breaking higher, purely as a short/medium-term (2-3 weeks) play.”
There is little major news due from the UK for the remainder of April so the key threat in our view is a resolution to the situation in Greece.
Should an emphatically positive outcome be achieved then we see the prospect of a strong move higher by the euro.
UPDATE: Thursday morning sees Lee concede that this speculative bet on a euro bounce has been invalidated.
"I’m not willing to take a big risk with my entry level in EUR/GBP and I booked a small loss overnight after support at .7170 failed to hold. I still prefer the buy-dip strategy in the short-term but I will sit back and wait for better opportunities," says Lee.