Forecasts: Pound Euro Advances Ahead and Losses vs US Dollar May Soon Start to Ease

Pound Sterling Live's latest technical updates shine a light on where the GBP is likely to head next. For reference, at the time of writing:

• The pound sterling to US Dollar exchange rate (GBP/USD) is 0.1 pct higher on a day-to-day basis having reached 1.6604.
• The pound sterling to euro exchange rate (GBP/EUR) is 0.16 pct higher at 1.2604.

(Keep in mind that these are spot market rates to which a discretionary spread is added by your bank/provider. An independent FX provider will however guarantee to undercut your bank's offer, in some cases delivering up to 5% more FX. Please learn more.)

US Dollar Continues to Strengthen

The theme of a strengthening dollar has been extensively covered in this publication:

"The US dollar has made a remarkable turnaround over the last five months as expected monetary policies diverge amongst some of the largest central banks. Optimism has returned along with the dollar bulls as the US recovery looks more robust and the EU continues to look shaky," note Blackwell Global in their latest currency update to clients.

But, Pound Should Stay Supported

Despite the continuing strength of the USD, we could however be about to witness the pound sterling put an end to recent declines.

Lloyds Bank Research says that the pound dollar rate remains caught in a downward channel, however:

"We still see the underlying story for the UK as essentially unchanged, with the market pricing of a rate hike in Feb/March next year looking sensible on the basis of the strong H2 growth that we and the MPC anticipate. Consequently, there seems little reason for a major deviation in policy expectations between the US and UK, even though Yellen’s comments were considered to be more hawkish than previously.

"The bottom end of the recent channel consequently seems unlikely to break in a week short of major UK data, suggesting GBP/USD will hold above 1.6450, with potential to rally on a break above the top of the channel which will stand at 1.6585 at the end of the week."

Axel Rudolph at Commerzbank tell us which technical levels he sees as being relevant for the outlook:

"GBP/USD’s swift descent has so far taken it to a four month low at 1.6543 which was made below the 61.8% Fibonacci retracement at 1.6611, the 1.6585 late February low and the 1.6558 April low. A minor bounce off the current 1.6543 August low is now being seen but eventual failure there cannot be ruled out in which case the 1.6467/54 March low and 78.6% Fibonacci retracement will be targeted.

"Longer term we look for losses back to 1.6000. Minor resistance comes in around the accelerated downtrend line at 1.6680 and also along the 200 day moving average at 1.6682. While capped by it, GBP/USD will remain directly offered."

Euro Pound Exchange Rate Forecast

Turning to the euro pound rate (EUR/GBP), Rudolph says any strength in the euro should ultimately be short lived:

"EUR/GBP still slides along the 55 day moving average at .7964, having fallen through the and the two month uptrend line at .7971. Failure at yesterday’s .7953 low will push the .7935 August 13 low to the fore. We still expect EUR/GBP to remain below the .8033/36 resistance zone, made up of the late June and current August highs.

"A break above the .8033/36 area would introduce scope to challenge the .8074/82 38.2% Fibonacci retracement of the March-to-July decline and May low. Such a rally should fail ahead of the .8136/59 50% retracement, February low and late May high at the very latest."

This Area Should Offer Strong Resistance

Also backing the notion that any declines in the sterling euro rate will be shallow is Piet Lammens at KBC Markets:

"In August, sterling fell prey to profit taking. The UK data turned a bit mixed. Especially ongoing low wage growth helped BoE chairman Carney to fend off calls for early action. At the same time, the BoE minutes showed that two members voted for a rate hike in August. EUR/GBP settled in a 0.7875/0.8035 consolidation range.

"The sell‐off in cable is in the first place due to dollar strength. EUR/GBP touched a correction top in the 0.8035 area mid‐August, but global euro weakness prevented a further rise.

"We assume that this area will mark a new strong resistance for the EUR/GBP cross rate. We reinstall a sell‐on‐upticks approach. The 2014 low (0.7874) is the first important support. We maintain our LT bearish view on the euro with EUR/GBP 0.7755 as a target."