Sterling’s decline paused last week, allowing a glimmer of hope to investors for a much-needed rebound. Euro’s climb, though, continued uncontested for another week, printing new multi-year highs against the US dollar. Can we pick the rally’s top that will probably allow some breathing room to Sterling? Below, we investigate the economic news and the charts looking for answers.
Sterling slowed down following a fierce decline the week before against Euro and hovered around 1.115 last week.
The short-term consolidation stage comes days before Super Thursday, the pinnacle of UK economy reports. With no rate hike expected by the Bank of England though, Sterling will struggle for a rebound. Manufacturing, Construction and Services data is reported this week as well, moving the spotlight to the UK economy from Brexit talks during the previous week.
Mixed Brexit comments left investors confused. Although most Brexit-related headlines were negative for the Sterling, there were still positive notes, such as the ones made by the UK’s finance minister, Philip Hammond, who wants companies to have full access to the single market for two years in the post-Brexit era.
Yet, Sterling failed to show any strength, as Euro appreciated across the board fuelled by Eurozone growth data and inflation reports last week. Sterling’s weakness should continue the week ahead, unless BoE meeting takes the market by surprise.
GBPEUR has been dropping rapidly since May when it last bought €1.19. Since the 1.13 support level failed, the Pound-to-Euro exchange rate experienced increased volatility, heading towards 1.08, the multi-year low that was printed on last year’s flash crash.
The most optimistic analysts talk of a prolonged consolidation phase that will keep Sterling’s trading in the 1.11-1.14 range. The most negative predictions imply a collapse to parity against Euro and maybe the truth lies in the middle.
As Brexit talks are destined to dominate the news over the coming months and UK economy doesn’t show promising data, it’s hard to foresee a strong upside in the Sterling’s charts any time soon. And even if GBPEUR jumps on 1.11 level, it will most probably take weeks, if not months, to overcome the resistance at 1.14.
Euro enjoyed another week of gains and extended its rally against US Dollar, climbing from 1.166 to 1.175.
Inflation numbers and growth data out of the Eurozone kept the momentum going for the European currency for yet another week. The point of this economic euphoria is the signal it sends to the markets that the European Central Bank may be on the verge or at least considering a withdrawal of its stimulus. If the asset purchasing programme is withdrawn or limited at the very least, Euro’s will most likely welcome the move and appreciate even more. Perhaps that’s why it has already gained 12.5% this year against the US dollar, as market participants are getting eagerly excited of the shift in the economic policy, in addition to the weakening US dollar.
Monday will see another flux of Eurozone-wide inflation numbers while the week is packed with ecodata. Given EURUSD is making new multi-year highs and trading into an uncharted territory for the last three years, it’s quite hard to pick the rally’s top. And by the looks of it, we’re still far away from it.