The Pound to Euro Exchange Rate: Short-Term Trend Higher Remains Intact

 

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Pound Sterling dipped against the Euro on Tuesday January 25 after the Supreme Court announcement on the Article 50 case triggered a bout of volatility across the Sterling strip. 

However, technically we stand firm behind the belief that the short-term uptrend since the Jan 14/15 lows remains intact and is therefore biased to continue.

To be more confident of our call for a continuation higher we would first want confirmation supplied by a break above the 1.1673 highs.

At the time of writing the exchange rate is at 1.1674 - so we are in the business area.

Such a break would then be expected to extend higher to a target at 1.1760, which is just below a resistance ceiling at 1.1773.

For a reversal in the uptrend the pair would have to break below the higher low at 1.1515, and the S1 monthly pivot at 1.1505.

Such a move would constitute reversal and confirm a probable move lower to the next target at 1.1400.

GBPEURJan24four

The daily charts also support the possibility of a resumption of the downtrend, with the mid-January recovery describing an a-b-c correction on that chart, which still means the broader downtrend from the early December highs is probably still intact.

Nevertheless, complicating the picture on the daily chart is the MACD which has clearly crossed its signal line in a bullish signal and the steepness of the a-b-c correction, which is sign it risks being the start of a stronger bullish reversal.

GBPEURJan24

 Why did the Pound Not React Positively to the Supreme Court Decision?

The UK Supreme Court has made its decision over whether the government can trigger Brexit without a vote of parliament or not, and now that one of the biggest events for Sterling is out of the way, we think the currency deserves a review.

The court voted against the government’s case that it had the royal prerogative to trigger Brexit on its own, which means a bill must be passed by parliamentary vote.

This means the government needs parliament to agree its negotiation plan, which could lead to its watering down, resulting in a softer Brexit.

The reason the Pound did not leap higher following the Supreme Court’s announcement (this morning), however, is because Theresa May had already ‘front-runned’ the decision by offering Parliament a vote regardless of the outcome of the court case.

The issue of most potential impact on markets was whether devolved regional assemblies in Scotland and Northern Ireland would also have a vote.

In the end, the Supreme Court decided they did not have the right to vote on Brexit.

If they had been allowed a vote, they would probably have voted against Brexit, since the majority of the electorate in those regions voted against Brexit in the referendum – especially in Scotland.

In such a circumstance the Pound would have catapulted higher, at least temporarily, since there would have been a risk of Brexit not happening, or of referendum’s being held in the regions affected and a potential remapping of the UK.

As it was this did not happen and Sterling actually pulled back.

The admission by the opposition Labour Party that it would not fight a Brexit in parliament further strengthens the government’s hand and increases the chances of a Hard Brexit - which explains the Pound’s pull-back today (Jan 24).

Nevertheless, the Labour party has asked to have some powers of oversight in the negotiation process which if granted could support a softer Brexit and strnegthen the Pound.

It is now possible that Sterling may change direction and fall or simply meander in a range unless affected by its counterpart.

This is because the most significant event, which may have substantially impacted on the outcome of Brexit in the first half of 2017, has passed.

It may well be the case that at the current turn the exchange rate reflects, better than at any time during the referendum all known news and information in regard to the question of Brexit.

There is, therefore, a fundamental risk of a fall in its value.

Or even a rise if the government’s plan appears Softer than currently expected.

 

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