Euro Research Paper from Halo Financial

(Clare Allen) #1

Good afternoon everyone. Please find below a research paper on Sterling Euro, I thought it might be of interest. Enjoy!

GBP / EUR Chart

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GBPEUR managed to hold onto long-term weekly support in October just below €1.12 to bounce 4.5 cents higher in the following few weeks. This is very important as this 13-cent trading channel has been in place for 2-years now and has defined the range over this period.

Concerns over sovereign debt have once more been heightened after another Eurozone nation goes pop. It is Ireland who has joined Greece in the insolvency club and they may be joined by Portugal and Spain in the future. The Euro is back in trader’s cross hairs and this has seen it fall 4% against the pound since October 25.

The proud pound on the other hand has seen some genuine strength in its own right due to strong fundamentals.
Q3 UK GDP growth was miles stronger than forecasts for the second quarter in a row proving the UK is indeed well out of recession. CPI inflation data remains elevated suggesting further Quantitative Easing from the Bank of England is not only unlikely, but irresponsible. Ratings agency S&P upgraded the outlook for the UK from negative to stable and added their support for the government’s austerity measures. And finally UK manufacturing data has surprised to the upside, rounding off a number of convincing reasons why the pound should be gaining against the Euro.

This morning the important Bank of England Inflation Report is released and is likely to dictate whether GBPEUR breaks above huge resistance (a ceiling) at €1.16 or more likely whether the pound is talked lower by Mervyn King.

So where to now?

It appears the 10-cent correction lower in GBPEUR from €1.22 over the past 12-weeks is over and GBPEUR should gradually push higher in the future months. This doesn’t rule out volatility of 4 cents or so up and down on this slow journey higher so opportunities exist for both buyers and sellers.

EUR Buyers

€1.16 resistance is very tough to breach in the short-term and will likely cap this particular move up. We recommend buying a portion of your Euros ahead of €1.16 and look to pick up the balance on a potential break of €1.16 resistance which will then target €1.19. A break below €1.14 could see GBPEUR fall all the way to €1.12 and still be in the overall uptrend.

EUR Sellers

We feel we have seen the lows for Euro sellers so sensible downside targets at €1.15+ are wise in case €1.16 resistance is broken quickly. On this eventuality GBPEUR could catapult back to at least €1.19, so stop-loss orders above €1.16/1.17 are recommended. €1.15 in my opinion is probably 10% below fair value in GBPEUR so I would be a seller down here.

Momentum Indicators - GBP / EUR










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