Euro came out stronger after last week’s European Central Bank meeting, which subsequently sent GBPEUR exchange rate to new multi-month lows. Sterling still struggles to reverse its downward course, harmed by anaemic progress in Brexit negotiations.
Yet, the driving force for the short-term collapse against Eurozone’s currency has been undoubtedly Euro’s powerful rally rather than Sterling getting much weaker. Euro has also been gaining against US dollar that is fading, largely driven by political uncertainty on the other side of the Atlantic Ocean.
Below we investigate what we should expect this week for Euro and Sterling exchange rates based on chart analysis and focusing on upcoming economic reports.
Sterling’s dive took GBPEUR down to 1.114 from Monday’s open at 1.141. Sterling last traded at that level in US Presidential election last November, when it advanced to 1.20 in just four weeks.
Despite Mario Draghi’s warnings, market continued trusting the Euro, sending a message that the strong Eurozone economy is in the driving seat. Although ECB didn’t change its policy or its asset purchasing program, policymakers did hint for a forthcoming change in autumn. It’s not the first time we hear of an impending rate increase but what the market participants are after for is a ‘taper’ of its monetary stimulus.
At the same time, ECB little concern for the Euro’s recent appreciation and for the inflation’s low levels led to more Euro buying in the foreign exchange market. Despite ECB stressing that QE programme will run as long as inflation rate doesn’t pick up, inflation’s upward path and firing Eurozone economy show clearly what is on the horizon.
Technically speaking, GBPEUR printed new lows as the support at 1.12 failed on Draghi’s speech. Bullish investors were trapped the week before, when the currency pair bounced to 1.14 momentarily, printing an otherwise considered bullish pattern.
As Euro strengthened, it was inevitable for GBPEUR to decline and given it had already broke below the 1.13 this month, selling power would quickly dominate the market again.
Big news for Sterling this week includes the GDP data on Wednesday, but other than that it will be a data-quiet week. GBPEUR bearish momentum is strong enough to keep the exchange rates to the current levels, if not sending them even lower. Yet, we expect a decline’s pause at 1.11.
Euro gained 1.74% against the US dollar last week, capitalizing on its 6-month rally.
Driven mostly by ECB comments on Thursday and continued US political confusion, EURUSD rise was a mix of strengthening Euro and weakening Dollar. This week it will mostly be impacted by Eurozone countries reporting PMI and CPI data on Monday and Friday correspondingly, in addition to money supply and Spanish unemployment data on Thursday.
With no signs of slowing down and approaching levels in uncharted territory, it’s hard to guess where EURUSD’s rally will meet resistance, trying to pick the top. On Friday EURUSD closed higher than the support level at 1.15. Although it has briefly traded as high as that, EURUSD last closed at this level in January 2015!
A wild guess is that Euro will meet resistance at 1.171, which is the 2-year high. Yet, there’s no other sign suggesting a resistance there. Thus, as long as Eurozone economy continues improving, Euro is unlikely to suffer losses this week, unless investors will be taking profits after last week’s upside.