Pound to Euro and Pound to Dollar both Set to Strengthen; What do the Charts Say?
Market-watchers have been talking up sterling as market modes shift from highly unstable to more balanced - a characteristic expected to support the pound, especially against the euro and the dollar.
A lack of data from China and rebound in the price of oil are the main reasons given by analysts for this recovery in risk appetite, which is expected to be sterling-positive, but what do the chart’s say about the pound’s future, we look at the two most traded partners.
Sterling v Euro
GBP/EUR has broken back inside its descending channel.
The previous breakdown below the lower edge of thechannel may have been an exhaustion move, signalling the termination of the previous down-trend.
It is too early to say that the down-trend has completely reversed, but the incidence of three up-days in a row at the end of a down-trend is a bullish signal in itself.
There are two layers of strong resistance directly above the exchange rate, which stand in the way of more robust gains, these are the S1 Monthly Pivot at 1.3268 and the neckline for the large head and shoulders pattern visible on the weekly chart, a bit higher at 1.3368.
RSI has moved out of oversold after forming a double bottom, a further bullish sign, although its recent pull-back may be a sign momentum is waning.
Ideally for conformation of more up-side I would want to see a breach clearly above the neckline, confirmed by a move above the 1.3450, with a target at the 50-day MA at 1.3600.
Alternatively, a resumption of the dominant short-term down-trend is also possible, with a break below the 1.2893 lows, leading to a move down to support from the 200-week MA at 1.2615.
Pound v Dollar
The breakout from the falling wedge reached its target at the 100% extension of the height of the wedge extrapolated down, and then rotated, forming a hammer candlestick on Thursday and moving higher.
We have now had three up-days in a row, which is a bullish sign, and there is the possibility it could go even higher.
RSI(14) however, has not yet moved out of oversold, and ideally it would be preferable to see it rise above 30 for evidence of more upside.
If it breaks clearly above the S2 Monthly Pivot, which would be confirmed by a break above the 1.4450 level, that would probably indicate a move all the way up to resistance from the S1 Monthly Pivot at 1.4570.
A break below 1.4078 would probably indicate a move down to 1.4000 first, and then below 1.3980, would probably signal a further extension down to the 1.3800 level, where the S3 Monthly Pivot is situated.
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