Tusk Statements Boost Pound Vs Euro and Charts Show Further Gains Are Likely
Sterling has reversed earlier losses on hopes the “deadlock” in Brexit negotiations could soon be broken and, according to technical analysts, the charts now also support further gains for the Pound.
Friday’s turnaround for the Pound was sparked by statements from European Council president Donald Tusk and a host of other European politicians.
In a press conference marking the conclusion of October’s EU summit, Donald Tusk played down concerns over progress, or lack of, in Brexit negotiations.
"After Prime Minister May's intervention last night and our discussion about Brexit this morning my impression is that the reports of the deadlock between the EU and the UK have been exaggerated and while progress is not sufficient it doesn’t mean there’s no progress at all," says Tusk.
European Union officials are beginning internal preparations for the progression of talks on to the subject of trade and transition.
“I may be a little more optimistic than Barnier on Brexit talks,” he told reporters.
Sterling had lost substantial ground going into the Thursday and Friday summit after data showed UK inflation rising again and consumer spending weakening in September.
Expectations were that the summit would end without any meaningful scope for the apparent “deadlock” of talks to be broken.
European negotiators have been holding out for a larger “Brexit bill” and concessions in several other areas before they are willing to talk about trade.
The European Central Bank’s plan to begin winding down its quantitative easing (bond buying) program over the coming months has also been a source of downward pressure on the Pound-to-Euro rate in recent months.
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Where Next for Sterling?
With so much political uncertainty dominating the narrative around the Pound-to-Euro pair, the technical picture has received little attention of late.
The four-hour GBP/EUR chart currently shows the exchange rate oscillating in a broad sideways move between 1.1070 and 1.1290.
Robin Wilkins, head of Global Asset Strategy at Lloyds Banking Group, says the exchange rate will eventually break out of this range, however, and recover, as the Pound strengthens.
Prices will remain in a choppy range between 1.1433 - 1.1550 resistance levels and the 1.1070 support, he says, but they could eventually break out higher to test 1.1720. That is itself within a medium-term 1.0610 to 1.2030 range.
Commerzbank's Karen Jones places emphasis on the October lows at 1.1070 which if breached will lead to a deeper sell-off down to 1.1000.
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