Euro to Pound Outlook: Questioning if the ‘Core’ Trend Higher is Still in Place

Euro to Pound Outlook: Questioning if the ‘Core’ Trend Higher is Still in Place

18 April 2016, 14:50
Vasilii Apostolidi
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We consult a number of pro’s from the likes of Societe Generale and Hantec Markets as to where the EUR to GBP exchange rate is moving next.
The euro is in command at the start of the new week as traders have opted to see out the currency in response to moves in the oil market.

Crude oil prices fell dramatically in response to the failure of the world’s major oil producers to limit production and thus prop up prices.

The side effect of falling oil prices are weaker commodity dollars (CAD, AUD) and a weaker US dollar.

 

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The euro seems to be a destination for much of the funds exiting these areas, and the euro to pound sterling has risen in sympathy.

At the time of writing the pair is at 0.7973.

The fundamental outlook for the EUR to GBP pair will be dictated by Bank of England Governor Mark Carney who appears before the House of Lords Economic Affairs Committee on Tuesday.

The Governor will deal with a number of GBP-orientated topics that could well determine price action.

However, it is the the ECB’s April policy meeting that will likely attract most attention.

Policy setters are likely to maintain policy this week, despite five year inflation expectations heading lower once again; the latter comes despite final Eurozone HICP coming in above expectations last week.

However, we would expect the central bank to maintain a dovish tone, in the process helping cap and excessive strength in the euro exchange rate complex.

 

Where Next for EUR/GBP?

Turning to the underlying market, we ask a number of analysts where the euro is likely to trade against the pound this week.

Knowing where the pair’s limits lie will help inform those with outstanding payments as to where the best possible order areas to transact can be found.  

Robin Wilkin at Lloyds Commercial:


“The cross has pulled back and is holding important support in the 0.7925-0.7880 region.

“A break of this region would support further EUR underperformance, for a move back towards 0.7750-0.7650 support below. Intra-day resistance lies at 0.8005-0.8035.

“If we hold over support and rally back through there it would suggest the core trend is still in place.

“Medium term, the trend from the 0.6935 lows set in July 2015 remains intact.

“A decline through daily trend support at 0.7925-0.7880 would add increasing weight to confirming a significant top is developing.

“Only a clear breach of the 0.82 region would suggest that isn’t the case with little meaningful resistance above till 0.84 and then 0.87.”


Stéphanie Aymes at Societe Generale:


EUR/GBP is facing stiff resistance at multiyear descending channel upper limit near 0.81/0.8150, also the 61.8% retracement from 2013 highs.

“With monthly indicator near a resistance, only a break beyond 0.81/0.8150 will lead to a larger up move. Short term retracement is likely towards daily channel at 0.7880/30.”


Richard Perry at Hantec Markets:


“The breakdown on the euro below $1.1325 continues to imply a near term correction back towards $1.1200.

“The outlook remains broadly positive within the trading range over the medium term but the chart still looks corrective.

“The Stochastics continue to fall back and the MACD lines only recently crossed lower. The minor technical rebound at the backend of last week was rather tepid with a couple of rather drab, small bodied candles, whilst in the Asian session today there has been little real appetite to buy the euro.

“The hourly chart shows that the old support around $1.1325 has now turned into overhead supply, whilst the hourly momentum indicators are also beginning to roll over already.

“Initial support comes in around $1.1230/40, with more important support not until around $1.1140.”

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