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Weekly Markets Diary - FX

GBP/EUR monthly chart

1M GBP/EUR chart (Source: TradingView)
Historical performance does not guarantee future profits.

Today we are looking at the GBP/EUR, a major European pair.

The monthly chart shows how the pair has been in a very broad negative trend for the past 35 years. Price data calculated before the launch of the euro can be used to extend the long-term charts before the actual introduction of the euro in 1999.

During the 2007 financial crisis price action moved down to within touching distance of parity, after breaking down out of the 1.400 price support. 2015 prices attempted to move back into this previous range, only to fail at this original break area.

The RSI over this long-term move has posted a positive trend (black line), so perhaps parity looming close to price action is creating long-term buying interest. Either way, price action remains in a relatively tight trading range.

GBP/EUR daily chart

1D GBP/EUR chart (Source: TradingView)
Historical performance does not guarantee future profits.

On the daily chart we can see the recent moves in more detail. The pair has been in a broad negative trend for 2022 (blue region) with a leg lower since the summer (green region). But has this summer move completed its fall?

The longer-term, more muted negative trend may well contain this late summer negative leg lower. A near Morning Star candlestick pattern has formed in recent days while the RSI is attempting to recover from oversold levels.

We had the ECB rate announcement last week, and have the Bank of England’s on Thursday, so after midday on Thursday the interest rate environment should become a great deal clearer for at least the next month.

There will be buying interest in the pound in the coming weeks. The only question is will this be enough to counter the longer-term negative trends? The monthly chart above highlights how moves towards parity do seem to be acting as a natural floor to price action, but also highlights that moves down towards it cannot be ruled out.

The positive RSI trend on the monthly chart, and the oversold nature of the daily chart, means we see buyers expecting the pair to make a move back towards the 1.1700-1.1900 area over the next few weeks.

The long-term future of any such expected buying will depend upon more positive fundamental data emerging.

Moves under the recent lows of 1.1420 would be very negative as this would highlight that medium-term selling continues to outpace the buyers who would be interested at these lower levels. This could open moves down to the major long-term support around 1.06. But because of the RSI oversold conditions we remain skewed to the positive for the medium term. We also remain unsure if this buying would “just” be another bear market rally or the start of something more sustainable.

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Please note that the presented content refers to the Oval group which contains two legal entities: Monecor (London) Limited authorised and regulated by the UK Financial Conduct Authority (FCA) with Financial Services register number 124721. Monecor (Europe) Limited authorised and licensed under the Cyprus Securities and Exchange Commission (‘CySEC’) with license number 096/08.