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Pound-Euro Outlook Turns Bearish, Weekly Close will be Key

Exchange rates on a trading screen

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  • GBP/EUR reference rates at publication:
  • Spot: 1.1572
  • Bank transfers (indicative guide): 1.1267-1.1348
  • Money transfer specialist rates (indicative): 1.1468-1.1514
  • More information on securing specialist rates, here
  • Set up an exchange rate alert, here

Technical observations of the Pound-to-Euro exchange rate suggests the outlook has now flipped from advocating further gains and is pointed lower, although some final confirmation is required.

Technical studies remove the noise created by news, data and a plethora of other drivers to offer those watching the market the opportunity to adopt a rules-based approach to their international payment needs or investments.

Karen Jones, Team Head of FICC Technical Analysis at Commerzbank says a "massive rally" in the Euro leaves Pound Sterling vulnerable to further losses in value over short-term (hours to days) and medium-term (weekly) timeframes.

The Pound-to-Euro exchange rate has eroded the September 07 low at 1.1600 and fallen to 6-week lows, amidst a broad-based sell-off in the Pound linked to fears of exceptional UK inflationary pressures.

Jones says the Pound-Euro exchange rate is now poised to test the 200-day moving average located at roughly 1.1563 and the July 2021 low at 1.1532.

The focus on the 200-day moving average is significant in that it suggests a major trend change from higher to lower is about to take place, or fail.

200 Day MA support

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If we look at the above chart we can see that at Point A the market made a decisive break below the 200-day MA and the rebound was scuppered by the resistance that the levels around the line subsequently created, highlighted by Point B and C.

Only the break at Point D proved successful and a broader uptrend ensued.

A casual glance at the chart will show that predicting price movement around this indicator is not an exact science as there is no shortage of false breaks but it can nevertheless have a material impact on the overall psychology of the market when speculators and those with sizeable payments layer their orders around it.

Decisive failure of this level could invite further selling while a defence could yet rescue the day for Pound Sterling bulls, particularly if fears concerning the UK's economic outlook ease.

Jones says she would like to see a weekly close below the 200-day moving average to confirm a major trend change.

She does however asses a short term peak has been established for Pound-Euro at 1.1730/1.1757, suggesting the prospect of rates towards 1.20, as some forecasters had predicted, are out of reach.

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