The GBP/EUR pair may reach the important 1.2000 handle as Sterling benefits from talk of ‘Soft Brexit’ - although the European Central Bank rate meeting could provide volatility in either direction.
Sterling, appears to be at risk of further appreciation in the coming week after comments from the Brexit Minister David Davis opened a chink of hope that the UK might be able to buy continued membership of the single market.
This would protect exporters and the city from a ‘Hard Brexit’ which it was feared would lead to a loss of trading rights with the EU.
The Pound is likely to continue being sensitive to ‘Soft Brexit’ commentary this week and may rise higher if more information on the government’s negotiating stance emerges.
The Euro may also rise if Mario Draghi strikes a more confident tone at the European Central Bank (ECB) rate meeting on Thursday.
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Although the ECB is forecast to extend its QE programme by six months, there has been talk recently that it may talk about tapering the number of purchases instead – which would be Euro-positive.
Italy and Austria have a referendum and a presidential election on Sunday 4 and these could help the Pound at the start of the week if they lead to anti-EU party victories.
If so the UK may not be the only country negotiating a different style of membership with the ‘club’, and not being alone could support its negotiation stance.
Currently, analysts see a win for the ‘No’ vote in the Italian referendum as negative for the Euro, but much depends on whether Prime Minister Matteo Renzi resigns.
There are some who have also pointed out that a win for ‘Yes’ could also weaken the Euro.
This is because a win for ‘Yes’ would help enable a new electoral law called the Italicum, which favours one-party rule over coalition government.
And it is the Italicum which could lead to a win for the anti-Euro Five-Star party who would have more power to further their Euro-sceptic agenda and possibly take Italy out of the EU.
GBP/EUR Chart View
The GBP/EUR pair is in a strong, short-term, uptrend and has made highs of 1.1951 in the past week.
The uptrend looks a little overbought and the MACD momentum indicator looks like it is about to cross under its signal line – which would be a bearish sign.
We remain, nevertheless, cautiously bullish, seeing a break above the 1.1951 highs as providing confirmation of more upside towards a target at 1.2000.
Resistance at that level, however, from the September highs, is likely to limit further gains.
The R1 monthly pivot at 1.2079 is also likely to prove an obstacle to further upside.
Monthly Pivots are sold levels of support or resistance where traders often open counter-trend orders.
Data for the Pound This Week
A major release for the pound will be Services PMI for November on Monday December 5 at 9.30 (GMT).
On Wednesday, December 7 at 9.30, there is the release of October Manufacturing Production.
Finally, on Friday, December 9 at 9.30, the Trade Balance for October is Released.
Data for the Euro for This Week
This week will be dominated by the European Central Bank’s Interest Rate Decision on Thursday, December 8 at 12.45 (GMT). https://apostolidi.ru/