Thursday 20th March 2014
Things have settled down in the currency markets after the economic data released yesterday. Pound/Euro is at €1.20, and I don’t expect it to go higher in the short term. Pound/Dollar has dropped to $1.65.
Today I’ll take stock of where exchange rates stand, explain something called ‘Support and Resistance’ which is limiting the rate going higher, and look at how to ensure you get the best possible exchange rate.
Sterling/Euro rates hit a resistance barrier at €1.20
As outlined in my post yesterday, the warnings from the Bank of England about the strength of the Pound have been limiting any gains. It has crept up a little more today, hitting €1.20 before dropping back slightly. This is what I thought would happen earlier in the week.
So why is it hitting the barrier at €1.20? It’s to do with something called resistance. For those interested in the technical side of it, you can find a detailed explanation of Support and Resistance here.
The chart above shows today’s movements, and you can see the rate hitting €1.20 before dropping back away.
In simple terms, a resistance level, in this case €1.20, is a key level at which the rate hits a barrier and drops back away. It happens because at certain levels the number of sellers exceeds the number of buyers causing the price to go back down.
It’s really only of interest to investors and speculators. I don’t cater for that type of exchange, as most of the clients I can help are buying or selling property abroad, or businesses that need to buy and sell foreign currency. It is wise to have a basic understanding of it however, as it’s likely to stop the rate getting any higher in the short term.
Because of this, I now expect the GBP/EUR rate to struggle to break through the €1.20 level for some time. As you can see from today’s chart, when it got to that level it fell back again, and this is now likely to happen again and again. This will continue until there are new economic figures that would have to be above expectation and causing Sterling to increase and break through. If and when it does, which may take some time, its likely keep rising towards €1.21.
At the end of last year, it took a few months to break through the €1.20 level. So if you need to buy Euros then this resistance level could mean this is the peak for some time. If I needed Euros, I would either fix a rate now, or at least place a ‘Stop Loss’ order to protect against the market dropping back away.
Pound/Dollar drops to $1.65
GBP/USD has moved down today, after a speech by the new FED chairman Janet Yellen.
She hinted that interest rates in the US could start to rise in early 2015, which caused the Dollar to strengthen and become more expensive to buy.
Again looking at the chart, you can see a good example of ‘Support’ that I mentioned earlier, which is at $1.65.
Other Currencies: GBP/AUD, GBP/NZD, GBP/AUD
Sterling exchange rates against the commonwealth currencies, such as the Australian Dollar, New Zealand Dollar, and also the South African Rand have been dropping in the last few weeks. This is because their economies have been improving, and also interest rates in these zones may start to rise soon. Also the strengthening of the US Dollar has also helped strengthen these currencies, making them more expensive to buy and pulling exchange rates down.
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