Euro's Recovery Against the Pound Faces Another Setback as Sterling Maintains Upper Hand

The euro has failed to get a firm footing and build any kind of lasting recovery against the pound, with the charts and the underlying fundamentals clearly showing the Sterling currently in control.

Ever since peaking back in mid-May, the euro has attempted a number of times to break out over a key technical barrier – namely the 100 day moving average – but each effort has proven short lived. Traders have termed these failed attempts “false dawns”, showing a lack of conviction from buyers to take the currency any higher.

On a technical level the consistent failure to stay above the 100 day moving average shows on-going selling pressure against the currency. Despite trading over the barrier for a brief period in July it soon fell back below it reinforcing the view that investors are not willing to push the euro too much higher against the pound, with until that is the case the overarching trend remaining Sterling favourable.

Beyond the charts the economic backdrop of the United Kingdom does little to encourage traders to buy the euro. As inflation continues to be a significant problem in the UK more people are expecting a longer time period between now and when the Bank of England eventually stops raising interest rates. Higher rates typically make a currency more attractive to investors due to higher yields on money and other investments in the country.

Unfortunately for the single currency the economic picture from the eurozone is anything but compelling. Continuing to see slow economic growth the eurozone continues to struggle from high energy prices and also from the ongoing geo political instability which has hampered business confidence, and put off investors, and encouraged people to avoid sterling, despite ongoing volatility elsewhere.

With currencies being subject to technical and fundamental factors many currency analysts believe that on this occasion the failure to stay above the 100 day moving average may lead to further downside. If the price continues to trade below the resistance the odds are stack against the euro with investors able to keep the downside pressures against the currency in check.

Key levels

So far it appears that while the pound may continue to out perform the euro. It would take a sustained move over 0.8585 to indicate a change in trend against the pound although this looks unlikely on present evidence, especially given how important that level is and it now remains important to stay below that level to continue the downside. It remains important to continue to keep prices below the 100 day moving average, now acting as resistance above 0.8465 to encourage additional selling pressure. A move back up over 0.8465 would probably cause a surge and take us higher towards the high seen at 0.8585 and beyond in due course.