Image © Andrey Popov, Adobe Stock

Pound Sterling appears to have finally broken through a key level of resistance against the Euro after the Pound-to-Euro exchange rate closed above 1.16 on Tuesday, February 27.

The Pound rallied across the board on news that the UK parliament now has the ability to explicitly vote on delaying Brexit if it fails to pass Prime Minister Theresa May's Brexit deal, thereby ensuring a 'no deal' Brexit is avoided, an outcome that is seen as negative for Sterling.

The GBP/EUR exchange rate registered a two-year high at 1.1675, before closing at 1.1637 on the developments.

This is the first time since May 2017 that the GBP/EUR has managed to record such a close, and as such it sets Sterling up for further gains, at least from a purely technical perspective.

"One of the main advantage when looking at the markets from the perspective of technical analysis is that a narrative is not required to understand market sentiment," say Piotr Matys, an analyst at Rabobank.

So where are the technical analysts saying the Pound can go from here?

Karen Jones at Commerzbank says the GBP/EUR "has eroded" the 1.16 highs (April 2018 high) and remains on the offensive. Commerzbank look for more gains to the top of the channel at 1.1710, and potentially the 200 week Moving Average at 1.1945.

Peter Stoneham, an analyst with the Thomson Reuters currency desk, is also eyeing this level, saying the "significant breaks" above daily and weekly Bollinger bands makes the 200 Week Moving Average at 1.1950 a target for bulls to aim at.

Above: The 200 week moving average - the blue line - is an upside target many technical strategists are now focussing on.

At key technical levels traders can be found to lay buy and sell orders, in anticipation of a move running out of steam and failing, because everyone else in the market is thinking the same way. But, when these areas of resistance are overcome often a currency finds clear air that allow it to move quickly to the next barrage of orders that might thwart the move.

Robin Wilkin, cross-asset strategist with Lloyds Bank says the exchange rate has been re-testing the 15-month range highs around 1.16, and a clear break up through this area of resistance would suggest potential for a further rise towards key long-term resistance in the 1.1978-1.2121 region.

But first, Sterling bulls will have to contend with resistance in the 1.1765-1.1834 region.

When will you know the Euro has retaken the advantage against the British Pound?

A decline in GBP/EUR back through 1.1520/1.1488 intra-day support would negate immediate upside momentum and "suggest we are still within a range trading environment," says Wilkin.

Long-term, on a multi-year basis, Wilkin says a rise through 1.2121 "is needed to indicate a real shift in sentiment", suggesting a move to 1.25/1.33 as a new cyclical upswing takes place.

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