Exchange Rates Forecast: Could GBP EUR Exchange Rate Head Down To 10-Month Low Of 1.1756?

Modified: Wednesday, 31 October 2012 08:52 BST - Written by John Cameron

STORY LINK Exchange Rates Forecast: Could GBP EUR Exchange Rate Head Down To 10-Month Low Of 1.1756?

In spite of last Thursday’s mildly encouraging UK Q3 GDP data, the UK economy’s vital signs remain worrying. Meanwhile, the eurozone’s debt problems continue to provide a nagging cause for concern for investors holding euro-denominated assets. With the two economies facing such clearly defined problems, it can be difficult for market participants to cut through the almost hourly data releases from the UK and the eurozone in order to ascertain what ‘fair value’ might be for the GBP EUR exchange rate. At times like this, it can be useful to put the fundamentals to one side and instead to concentrate on the technical indicators which are showing for the pair.

An initial inspection of a daily candlestick chart for GBP EUR immediately suggests that the pair was overbought on July 22nd when it traded up to a near 4-year high of 1.2894. In the 5 weeks leading up to this significant high, the pair gained over 6c, moving upwards from 1.2265 on 15th June, as investors feared that the Spanish and Italian economies might be going the way of Greece.

Price action for GBP EUR since this time has confirmed these suspicions; the pair has exhibited the classic features of a downtrend, showing consecutive lower highs as well as successive lower lows. Trading either side of last weekend’s close appears to have marked one such lower high, with GBP EUR hitting resistance at the 1.2500 level. A quick confirmation of this is provided by viewing technical momentum indicators – the fast Stochastic crossed below the slower rolling smooth Stochastic line at above the ‘overbought’ 80 level. Subsequent movement for the pair, which saw rates in the 1.23s yesterday, appears to back this up.

If GBP EUR continues on its extant 3 month downtrend, then a visit to its 10 month low of 1.1756 looks a possibility in the short to medium term.

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TAGS: Daily Currency Updates Euro Forecasts Euro Pound Forecasts Pound Eu Forecasts