The British pound (GBP) is forecast to see its recent solid run against the euro run into strong resistance as overbought conditions start to bite.
The call comes following the impressive 2015 rally witnessed in the pound to euro exchange rate (GBP/EUR) that has seen the pair break into the 1.35 region.
Lucy Lillicrap, FX risk management solutions at AFEX, tells us that markets could well be ready to call time on the British pound’s strength for the time being:
“Resistance around 1.3500 may well continue to limit Sterling advances here initially but looking forwards an upside resolution remains readable with long term technical readings still firmly positive.
“Additional corrective or at least re-consolidative action in coming sessions notwithstanding the prior break of 1.3000 has already completed a sizeable base pattern which should contain fresh erosion and also enable further advances.
“Downside scope is additionally limited by the presence of support at 1.3300 and while above this level 1.3540/50 remains in more or less direct reach”.
That said, AFEX believe that an upside breach of this latter point should trigger renewed GBP bullishness with an extension nearer 1.3800 if not 1.4000 readable eventually (indicative of gains continuing throughout much of 2015).
GBP/EUR Edges Higher Towards Recent Highs
Last week was a positive week for sterling gaining ground against most other currencies.
Against the euro it is back close to highs last seen in 2007 and against the US dollar it enjoyed its second week of gains in a row.
“The key question is will it be able to maintain this upward momentum in what is a quiet week for key and influential UK data releases? I suspect its movement is more dependent on what happens elsewhere,” says Carl Hasty at Smart Currency Business.
The week ahead sees little in the way of influential releases from the UK, with Wednesday’s quarterly inflation report from the Bank of England (BoE) providing the major talking point.
Commenting ahead of the week’s key event, Hasty says:
“With an uncertain situation in the Eurozone, as well as sluggish global economic growth, it will be interesting to see the BoE’s views on how events will affect the UK economy in the near future.
“The accompanying speech from BoE Governor Mark Carney could also see increased movement in the markets, with investors paying keen attention to any hints relating to interest rate decisions.
“Aside from this, industrial and manufacturing production growth figures on Tuesday are likely to be the major supporting figure.
“Should this follow suit from strong growth data released last week, we could see further sterling strength.”