GBP vs EUR: Trying to Identify Where the Selling Could End
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We comb through the most up-to-date research on the British pound / euro exchange rate to figure out just where the selling interest may end.
Pound sterling is under notable pressure on global FX markets at the start of the new month with the most recent polling evidence suggesting that the UK is headed for an exit of the European Union.
The polling data will come as a shock to a complacent market place that was happy to keep buying GBP on the assumption that a Remain vote was sealed.
The important point to note that there remains a strong probability, according to the bookies whose odds tend to be more reliable than polling evidence, that the UK will vote to Remain.
With this in mind we would suggest that the sell-off in sterling may ultimately find support - but where?
Trying to pick the floor is almost a fools errand, but there are some experienced analysts out there who know where to look.
We bring you their views.
Where the Selling Could End: The Support Zones
Lloyds:
A strong down day for the GBP/EUR was seen after the pair failed to overcome channel resistance in the 1.3227 region.
According to Robin Wilkin at Lloyds Bank, short-term mechanical studies remain negative and as such while under resistance in the 1.3063/1.3080 region we can see a push towards more important Fibonacci and channel support in the 1.2903-1.2812 region.
A rise back through 1.3063/1.3080 would likely see a re-test of the channel resistance once again.
Longer-term Wilkin has cited 1.2346-1.2195 as a major support region and price action continues to suggest 1.2320 was a bottom that allowed a recovery for a move back towards 1.3699.
Further confirmation would come from a break through the 1.3333/1.3423 range highs of last year. A rally back through 1.2903/1/2821 would negate this outlook and suggest the advances were just corrective for a re-test of 1.2195, with a break there risking follow-through to the next levels at 1.1947 and possibly 1.1494.
Swissquote:
GBP/EUR’s medium-term momentum is still oriented upwards despite the ongoing retracement lower argues Yann Quelenn at Swissquote Bank.
Hourly support can be found at 1.2897 (23/05/2016 low) while hourly resistance can be found at 1.3219 (25/05/2016 high) and Quelenn says we should expect the pair to show further consolidation.
If we take a further step back it is argued that the pair is still seen to be retracing from recent highs made in 2015.
In the longer-term timeframe Quelenn argues that the technical structure suggests a growing downside momentum. The pair is trading well below its 200 DMA.
Strong support is however noted by the Swissquote analyst at 1.1344 (25/02/2013 low) - we would only really expect this level to be considered should the UK vote to leave the European Union in June as a notable fundamental trigger would be required for the move.
Commerzbank:
GBP/EUR has seen a major reversal just ahead of key resistance, which is the 50% retracement of the move from November 2015 at 1.3245 and the 200 day ma at 1.3280.
Analyst Karen Jones says that beyond this dip, her team remain positive on the exchange rate’s prospects.
“The market has recently completed a head and shoulders top, which offers a downside measured target to .7360,” says Jones, analysing the pair from the EUR/GBP angle.
In GBP/EUR terms the target mentioned is 1.3587.
The market will find initial support at the 1.2998 23rd May low says Jones, the short term uptrend at 1.2809 maintains near term upside pressure.
Societe Generale:
GBP/EUR faced solid support at the 1.2346, 61.8% retracement since 2013 and has staged a recovery through May back towards previous lows of 1.3228/1.333.
With daily RSI close to resistance, a break above will be needed for a continuation of the up move.
Short term, a decline can be expected towards the neckline of the Head & Shoulders pattern near 1.2853.
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