Euro to Pound Sterling: The Uptrend Hits a Wall

Euro to Pound Sterling: The Uptrend Hits a Wall

31 March 2016, 13:16
Vasilii Apostolidi
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EUR/GBP has been in a strong uptrend since breaking out above the 0.7490 range highs in January.

Recently, on March 24, it made a new 14-month high of 0.7945.

Since then it has slid back down to its current trading level at 0.7905 in a hint that the strong uptrend is troubled.

The 200-week moving average at 0.7933 has successfully capped gains for the pair, and it is likely to prove a formidable obstacle going forward as increased numbers of traders are likely to cluster sell orders there.

The RSI signal gives clues to a loss in momentum, this momentum indicator, helps determine whether a move is set to continue or is in fact failing.

The RSI on EUR/GBP's daily charts is not rising fast enough, or as far as the exchange rate, and this lack of confirmation concerns Commerzbank’ analyst Karen Jones, who suggests it may be hinting at deeper losses:

“EUR/GBP’s new high of 0.7945 has been accompanied by a divergence of the daily RSI, which is reflecting a loss of upside momentum near the previous high – this does not bode well for the up-move.”

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This combined with the presence of the 200-week moving average overhead gives a bearish taint to the chart.

“The market is losing upside momentum at the 200 week moving average at 0.7933,” confirms Jones.

The next support zone is at 0.7790 or 0.7757; a break below this zone would probably lead to a hefty move back down to the mid-0.75s.

Rising Channel Forecast to Rise Further

When forecasting currencies, timeframes are key.

Jones is approaching the euro v pound exchange rate in a short- to medium-term timeframe.

Looking at the bigger, multi-month, picture reveals the euro could yet rise further.

Analysts at online lender Swissquote see EUR/GBP rising in a channel which is likely to, “show continued increase.”

They see hourly resistance at the March 24 high (0.7945) and support at 0.7774. Longer-term they forecast a continuation higher:

“In the long-term, the technical structure suggests a growing upside momentum. The pair is trading well above its 200 day moving average.

"Strong resistance can be found at 0.8066 (10/09/2014) high."  This suggests that multi-month 0.8066 is a feasible target.

 

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