Image © SlayStorm, Adobe Stock

- Sterling to extend short-term downtrend versus EUR

- Break below 1.1550 was key determinant

- Our own analysis sees 1.1466 lows as key

A bias now exists for continued pressure on the Pound which is likely to see GBP/EUR extend losses says Mohammed Isah, an analyst at FXTechstrategy, an award-winning technical research provider.

The short-term decline in the Pound against the Euro now threatens to have become an entrenched downtrend, according to Isah: the RSI momentum indicator is confirming this by falling in parallel with Pound weakness, when momentum and price fall at the same time it reinforces the bearish trend.

The Pound has been falling against the Euro ever since its March peak at GBP/EUR 1.1785 - the current exchange rate is 1.1535, two and a half cents lower. It is seen continuing its decline at the time of writing on Wednesday, April 17.

The fundamental driver appears to be a broad-based lift in the Euro exchange rate complex, with the single-currency seen rallying on the back of better-than-forecast Chinese economic data.

Hopes for a turnaround in China are expected to boost global trade which investors are betting will bring an end to Germany's recent export slump and prove supportive to Eurozone economic activity in general.

Expectations for a stronger Euro feed into the technical outlook guiding Sterling-Euro, which is suffering directional cues thanks to a dearth of Brexit news.

Traders will tend to focus on technical charts for guidance in such news vacuums.

Looking at the GBP/EUR exchange rate's market structure, the break below 1.1550 was a key break which confirmed a continuation of the downtrend to the next stop lower at 1.1495, followed by targets at 1.1425 and 1.1365.

It would require a break back above the circa 1.1635 level to bring Isah’s bearish-Sterling hypothesis into question, says the analyst.

We also highlighted the current short-term downmove in our own ‘week ahead’ analysis of GBP/EUR .

The close below the 50-day moving average (MA) last Friday was a key turning point for the pair.

We also brought readers’ attention to the the pattern forming at the highs - quite probably of the ‘topping’ variety - which was a further negative omen for the exchange rate.

Chart patterns are complex consolidation phases in which prices remain roughly range-bound for a while before breaking either higher or lower. They are fairly common occurrences. The experienced analyst can sometimes tell the difference between those which are continuation and those which are reversal patterns. The pattern on GBP/EUR has reversal characteristics. It could be a double top of ‘fulcrum-type’ pattern common to point-and-figure charts.

In the week ahead analysis published on Sunday, our stance was neutral the pair pending a decisive break either higher or low. For a bearish confirmation we were looking for a penetration of the pattern’s neckline at 1.1466. Then neckline is the level which underpins the pattern’s trough lows.

“The key to deciding whether it is a bearish topping pattern or not, is whether the exchange rate can break below the 1.1466 lows. If so a steep decline should follow to the next major target at 1.1400, where the 50-week MA and monthly pivot are situated,” said PSL.

Time to move your money? Get 3-5% more currency than your bank would offer by using the services of foreign exchange specialists at RationalFX. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency. Find out more here.

* Advertisement