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Can pound sterling finally break the shackles of a multi-week selloff against the euro?
The pound-to-euro exchange rate (GBP/EUR) is undergoing a big test as it tries to break through a ceiling that has determined trading patterns since August.
Dispensing with the clichéd idioms, GBP/EUR has on Thursday risen into a descending trend line, which the pair has not been able to close above since August 14.
As the chart shows, rallies have repeatedly risen into the line and ultimately failed and then recycled lower:
The down moves that follow those peaks have tended to be deep, ensuring the GBP/EUR exchange rate has steadily sunk through the August-October period.
So, with a renewed test underway, we are left asking whether the trend line will be cracked.
The answer is important for two reasons:
1) If the prevailing patterns hold (i.e. the market is fundamentally the same as it has been over recent weeks), then the pair will fall back. Those with euro purchase requirements would do well to act sooner rather than later.
2) If sterling breaks through the trend line and close above it, and ideally records a consecutive close above here, then we could be breaking out of that downtrend. If so, then a rally back to September highs becomes likely.
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UPDATE:
The test of the ceiling has failed, and it failed relatively soon after this article was posted.
We can confirm that some of our client did miss out on the spike for want of seeing how much further the pound would climb.
Here's the updated chart as of Friday morning:
