We take a look at the latest technical forecasts for the pound sterling (GBP) against both the US dollar and euro.
Before we hear from analyst Lucy Lillicrap, who heads the FX risk management solutions at AFEX, here are the latest spot levels for reference.
- At the time of writing we see the pound to dollar exchange rate is at 1.5158.
- The pound to euro exchange rate is at 1.3035.
Concerning the GBP/USD outlook Lillicrap says:
"Although Sterling prices have held up relatively well in cross rate terms over recent weeks USD demand is clearly still exerting a negative influence here with bounces continuing to look corrective only.
"Values failed to establish themselves back beyond 1.5250 (now local resistance) in the past few days and studies argue that even if seen such an interim positive evelopment will probably delay rather than rule out an extension below 1.5000 in any event.
"On this basis whilst the market is arguably range bound for now as previous declines are digested continued erosion remains readable going forwards. Looking ahead a re-test of the prior notable (1.4815) mid-2013 low is implied unless 1.5600 distant supply could be regained first."
Looking at the GBP/EUR, the AFEX broker says:
"The ability of Sterling values to surmount 1.3000 is encouraging from an underlying positive perspective and while some retracement of recent/sharp gains may be seen over coming sessions any such dip should prove corrective only.
"Local resistance exists around 1.3250 and this might be sufficient to limit further gains initially but any emergent weakness is likely to uncover fresh buying interest starting at 1.3015/25 then again in the 1.2890/00 region.
"Otherwise declines are considered untenable with sufficient prior base work to reach 1.3500 at least in the weeks ahead. Broader studies support the case for an extension to 1.4000 as well going forwards with no significant damage likely to be done to this long term positive environment unless key support around 1.2400 (Q4 2014 lows) gives way instead."
Fundamental Risks Pick Up for the Euro
The euro was still reeling from last Thursday’s decision taken by the Swiss National Bank to end its currency cap.
Few noticed final Harmonized Index of Consumer Prices (HICP) figures at -0.2 percent y/y on Friday, but the data continues to support the view that the European Central Bank (ECB) will need to take policy action at this week’s meeting.
"Indeed, there is no question that this week’s meeting is the main event risk this week coupled with Greek elections held on the 25th. European importers could remain somewhat side-lined in the run up to the ECB meeting," says Tiffany Burk at Western Union.
The focus will be on whether or not a QE program is launched and then the details surrounding the announcement.
"Anything under 500-billion in a QE program could be disappointing and the euro could experience further losses," says Burke.
On the other hand Burke tells us, a sharp injection of fresh money via QE of 700-billion euro or more could be met with enthusiasm initially, which could give European importers a chance to buy currencies at better levels.