As the Bank of England decided against an interest rate hike last Thursday, disappointed Sterling backers removed their support on the British currency, letting it slide to new multi-month lows against the Euro last week. Meanwhile, the Eurozone’s currency enjoyed another positive week against the US dollar, despite last Friday’s strong US jobs data.
Will EURUSD rally advance for yet another week? Does Sterling have a chance of reversing the negative trend this week? We take a look at the corresponding charts looking for answers below.
Sterling resumed declining last week, falling a cent against the Euro and closing at 1.107 on Friday.
Bank of England’s dovish tone and lowered growth forecasts led GBPEUR to nosedive in spite of manufacturing and services data beating forecasts, as BoE voted to leave interest rates unchanged on Super Thursday, pointing to weak wage growth. The bank’s gloomier outlook, the negative sentiment on Sterling and data on the construction sector missing the estimates by economists forced the British currency to new multi-month lows against the Eurozone’s rival, which remained sturdy on Eurozone data and US dollar weakness.
However, due to Euro’s increasing positivity showing signs of fading, investors may opt to buy the cheap and undervalued Pound next week. On the other hand, the central bank’s warning of the negative impact in national consumption and GDP the slump in wage growth and Brexit uncertainty are likely to have respectively, might deter support for Sterling in the foreign exchange markets.
Chart-wise, GBPEUR is trading at last November’s support level, which may inspire some bullish action over the coming weeks. Should that fail due to increasing negative momentum, Sterling may match last year’s low that took place during October’s famous ‘flash crash’, when GBPEUR traded momentarily at 6-year lows (1.08). If that level also fails in the next months, GBPEUR might end up at 2008 financial crisis’ low at 1.02 in due time!
Any short-term upside at this point should be considered a pullback as bearish investors would be taking profits out of the market. Having said that, it would take a big sentiment shift for the Sterling to climb above 1.12 against the Euro. Whatever the case, next week’s biggest impact for Sterling should come from the Manufacturing Production data released on Thursday and the never-ending Brexit debate.
Euro continued its rally against the US dollar last week, although Friday’s action almost had all weekly profit evaporated, leading to minor weekly gains and closing at 1.177.
The very popular Euro’s pullback was due to a rise in demand for the US dollar, powered by strong US jobs data on Friday. Key German data and Friday’s inflation are expected to provide the driving force this week for Euro.
Euro’s unstoppable rally has boosted the EURUSD exchange rate from 1.04 to 1.19 during the last 7 months and with little signs of slowing down the rally should bring EURUSD close to 1.20 range, where it’s expected to meet some kind of resistance.