After forming a low on February 25 GBP/EUR has moved broadly sideways.
Given the previous down-trend, the odds favour a continuation lower, eventually.
Such a move would be signalled by a break below the 1.2612 Feb lows.
This would lead to a probable move down equal to 61.8% of the width of the current sideways range, leading to a target at 1.2377, however, the S1 Monthly Pivot at 1.2508 provides and nearer initial target.
Looking at the MACD signal, which is an indicator which measures momentum, we note it is rising strongly.
This hints at a continuation of underlying strength, and we cannot discount the possibility of a break higher.
With confirmation coming from a break above the range highs at 1.3068, leading to a move up to a target perhaps at the R1 monthly pivot at 1.3183.
GBP to EUR chart for the week ahead
Fundamentals to Watch
“With concerns around the “Brexit” lingering on, sterling is still lacking the ability to gain meaningful ground against the euro. The downside risk for sterling certainly seems to exceed by a significant margin its upside potential,” says Charles Purdy of Smart Currency Exchange.
Odds of a Brexit have risen once more according to the Telegraph’s referendum poll tracker.
According to Helaba Economics, the euro may have higher to go as the ECB’s increase in QE appears to now be priced in:
“With regard to the euro it is worth mentioning that an appreciation is on the books despite the continuing divergence between monetary policies on either side of the Atlantic.”
One thing to consider is that the euro could lose traction if risk sentiment stabilises - indeed at the end of this week we witnessed better-than-expected Chinese data and upbeat Asian markets.
Praet Plays Down Draghi Rate Statement
According to Royal Bank of Canada’s Sam Hill, the European Central bank’s (ECB) chief economist Peter Praet downplayed Darghi’s comments about not cutting rates any further, arguing they might well cut them if necessary:
“ECB’s Praet gave an interview to La Republica newspaper saying ECB does not have a gloomy view of the world, that the deposit rate has not reached the lower bound yet and new rate cuts are still an option in case of a shock.”
Praet also discussed ‘Helicopter Money’ as an option.
RBC, also report Draghi as saying he had “no choice” but to cut rates in a closed door session, revealing a marked reluctance for the policy, from the President of the ECB.
Economic Data That Matters for Sterling / Euro
Headline UK CPI (year-on-year) is forecast to come out at 0.4% in February from 0.3% previously. The previous three prints were positive.
UK Public Sector Net Borrowing for February is expected to rise to 5.4bn from -11.8bn previously.
ZEW German and Euro-zone Economic Sentiment is forecast to rise on Tuesday March 22, to 5.9 from 1.0 previously.
The IFO sentiment gauge has fallen three months in a row, which is not a very positive sign for sentiment going forward, and could predict further declines to come.
IFO is forecast to come out at 1.06.0 from a current 1.05.7.
On Thursday there are preliminary March PMI’s for The Euro-zone, with Manufacturing expected to rise to 51.3 from 51.2, and Services forecast to remain unchanged at 53.3.
On Friday UK Retail Sales are out and expected to show a -1.0% drop mom in February.
Last month’s result showed an unexpected rise to 2.3%, however, this failed to have a strong impact on sterling.
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