Pound Sterling’s rally against the Euro is about to be tested by a key level that could thwart further advances.

What a difference a month makes; Sterling retains its upbeat mood against the Euro having risen from the depths of sub-1.08 in August to 1.12-1.14 in late September.

To be more accurate, the high registered in this latest pulse higher is actually at 1.1393 and with the market at 1.1349 at the time of writing, we are still within striking distance of its multi-month best.

However, there are concerns that the market will fight any further Sterling strength at this juncture.

Analyst Karen Jones at Commerzbank warns the Euro has “a LOT of support” around current levels which could halt the GBP/EUR exchange rate’s rally in its tracks.

Jones notes the Euro will be increasingly resistant to the Pound’s advances in the approach to the 1.1437 14th July high.

Jones is a technical analyst and studies the market’s structure to identify key levels that might halt or accelerate movements in the foreign exchange market.

The July high suggests to us the market is structured in such a way that traders tend to switch out of Pounds and into Euros around this levels.

Indeed, if we look at the below, the Pound-to-Euro exchange rate is now within a trading range that it favoured over a number of weeks during the summer:

Could it be about to consolidate around these levels again?

Between 1.1437 and 1.15 Jones says the Pound faces significant resistance, identifying the 55 week moving average and the 200 day moving average as well as the 2015-2017 downtrend which ultimately remains in place if we are to look at this exchange rate from a longer-term perspective.

As such, Commerzbank have “now exited all of our short positions” that seek to bet on the Euro’s decline against the Pound in the short-term.

For those holding Pounds and hoping for a better exchange rate against the Euro, we are therefore clearly now within a key area.

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Euro Getting Ready for a Rebound say KBC Markets

The recent decline in the Euro against the Pound might be nearing completion argues analyst Piet Lammens with KBC Markets in Brussels.

Lammens says medium-term, “we maintain a EUR/GBP buy-on-dips approach as we expect the mix of relative Euro strength and Sterling softness to persist.”

Lammens has been impressed by the Euro’s rally thus far in 2017 and argues it is fundamentally justified and weakness is ultimately likely to be limited.

However, the prospect of (limited) withdrawal of Bank of England stimulus put a solid floor under Sterling short-term term.

Nevertheless, the advantage appears to be waning.

“We look out how far the current correction has to go. EUR/GBP is nearing support at 0.8743 and 0.8652, which we consider difficult to break. We start looking to buy EUR/GBP on dips,” says Lammens.

EUR/GBP support at 0.8743 and 0.8652 gives us a ceiling on GBP/EUR at 1.1437 and 1.1558.

All Eyes on May's Italian Jaunt

Expect foreign exchange markets to hold the Pound and Euro in an holding pattern ahead of a key speech to be made by UK Prime Minister Theresa May in Florence, Italy on Friday.

The speech is expected to see May attempt to make concessions that will allow Brexit negotiations with the EU to proceed after months of apparent inertia.

The final composition of the speech was made following a cabinet meeting held in London on Thursday morning in which each member of cabinet had a say on the contents.

It is noted that at 2 hrs 30 minutes this was the longest cabinet meeting since the 2 hr 45 minute cabinet meeting held when the UK exited the European exchange rate mechanism in 1992.

Reports suggest the Government has settled on the idea that a 2 year transitional period will be required and a set sum of money will have to be guaranteed to Europe to progress.

And from a currency perspective, progress is what the Pound needs.

A smooth and orderly Brexit eliminates the kind of uncertainty that has weighed Sterling down ever since the UK voted to leave the EU in June 2016.