British Pound to Euro Rate Surges Through Key Resistance Zone

British Pound to Euro Rate Surges Through Key Resistance Zone

22 April 2016, 20:59
Vasilii Apostolidi

The breakout of a key area that we have been watching for many weeks has finally occurred.

The GBP/EUR exchange rate is trading at a one-month best having reached 1.2767 on Friday the 22nd of April.

There is no notable news to drive the rush higher but we note the gains are significant in that they are being realised following the break above the pairs 50 day moving average.

We have been following sterling’s inability to break above this point for some time now noting that recent history offers some interesting lessons when it comes to the GBP/EUR and its 50 day moving average.

On the 10th of March a recovery in sterling met the 50 day moving average at just below 1.30; for two days the currency tried to break above it but the sheer wall of sell orders saw the rally capitulate.

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The interesting point to note is that when the GBP/EUR last broke above the 50 day MA, back in October 2015, we witnessed an impressive rally from 1.3597 through to a peak at 1.4318.

This was a classic breakout that traders of moving averages would have expected as the clear-out of the sell-orders at this level left a vacuum within which the rally could really extend.

We believe that we could be witnessing a similar move higher - with selling interest (or buying on EUR/GBP) being cleared out the currency is rallying sharply.

The obvious target for the extension of the move is the 100 day moving average which is the red line currently at 1.2913; we expect a good deal of supply in sterling to be triggered at this point as traders place orders around here.

Note that the pound has this week broken above this arguably more considerable area of resistance against the US dollar.

GBP/USD has broken above the 100 day moving average, for the first time since September 2015.

Taken together, this is a sign that trend could be turning more positive for GBP against both the euro and US dollar following months of decline.

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