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This site has been designed to provide a wealth of information on both the euro and the pound, and in particular news, analysis and forecasts for the future direction of the $uros to poundshange rate, which is one of the leading cross currency pairs in the forex world. It is a fact of life, that if you are involved in buying, holding, or selling assets, either as a European with UK assets, or as a UK citizen holding European assets, then this particular exchange rate will no doubt influence the timing of your investment decisions. At a simple level of course, we are exposed to these fluctuations every time we travel abroad, and most of us just accept the fact that our trip or holiday is costing us more or less then last year. However, once we begin to invest in assets such as stocks, property, bonds, or luxury goods such as boats and cars, then the dynamic of exchange rate fluctuation becomes increasingly important, and can have a significant, and often over looked impact, on the longer term performance of our assets. As someone who has invested in property in Europe in the last few years, the weakness of the pound against the euro has offset the loss in capital value, as the European economy, like many others, continues to struggle, with property values falling as a result. The same argument applies for Europeans buying in the UK market, with a strong Euro and a weak UK pound at present making investments in property and UK equities a sound proposition. So the question of course at the moment is how much longer the current picture is likely to remain in place, and where is the euro to pounds pair heading in the longer term, and in order to answer this question we need to consider the world’s currency of first reserve, the US dollar.

In the last few days, we have seen the US Federal Reserve confirm it’s intention to introduce a further round of quantitative easing in an attempt to stimulate the US economy in order to create employment and jobs, whilst also attempting to prevent  the economy developing a deflationary cycle. The success of this policy is uncertain to say the least, and it’s effect may be with us for many years to come. Indeed many market commentators are now suggesting that the original estimate of 2 trillion US dollars is an under estimate and this could rise to 3 trillion or more in due course. These are staggering numbers for any economy, and with no guarantee that the policy will work, this is a huge gamble for the US economy and the world in general. For currency markets of course, the effects have been dramatic, with systemic weakness in the US dollar continuing, a trend we are likely to see for many months to come, as the dollar collapses under the weight of money in circulation. As such we are likely to see continued strength in both the euro dollar and pound dollar currency pairs as both currencies benefit as a result.

Europe however, along with the UK, is taking a more measured approach to the ongoing economic uncertainty, and in the case of Europe the ECB considers the US approach one of self interest, as it attempts to devalue it’s currency using quantitative easing in an attempt to support its exports and prevent a decline into a deeper recession, something which many other central banks are also considering, along with currency intervention, which have now developed into the so called “currency wars”. The European view is that their own economy is recovering slowly, and as such does not need the additional stimulus of injecting further money into the banking system at this stage. How much longer this policy will continue is anyone’s guess, particularly if the euro continues to strengthen further against the pound, and indeed once it begins to move back towards 1.50 against the US dollar, and 1.0 against the pound, then exporters in Europe will begin to call for a change in policy from the ECB, and indeed we have already seen German exporters demanding help as their products become increasingly expensive for overseas buyers.

So from a technical perspective where are we heading in the next few months? Well, since having almost achieved parity in late 2008, the euros to pounds pair has moved steadily lower over the last two years in a longer term downwards trending channel, marked with a series of lower highs on each occasion, moving from 0.9488, to 0.9407, 0.9149 and finally and most recently to 0.8926. On each occasion the move lower was marked by a shooting star candle, which signalled the move on the longer term trend as we slide away from the prospect of achieving parity for the pair. The major support area over the next few months is likely to remain at the 0.8000 price region, where a potential platform of strong support awaits, but should this be breached then we could see the pair turn lower to test the 0.7255 price level in the next 12 months. So in summary, the longer term technical picture remains bearish and we can expect to see a retest of the 0.8100 price level in the next few months, and the outcome at this level will then dictate whether this trend continues or finds some support at this level.


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