After a series of disappointing economic data releases last week, Sterling suffered significant losses against the Euro. As the UK economy continued to show poor signs for growth, GBPEUR exchange rate plunged to the 6-month support level once again.
Euro, meanwhile, managed to avoid a correction during its recent rally in its fight against the US dollar and has forced analysts to be even more positive in their short-term predictions for EURUSD.
Below we take a closer technical view of the respective charts, trying to guess Sterling and Euro’s direction. And right off the bat, it doesn’t look good for the British Pound.
Sterling fell and traded for 1.13 Euros the previous week after hitting a high at 1.142.
Sterling’s weakness came from a whole lot of underperforming PMI reports initially, that missed forecasts which were already negative in the first place. To cap it off, Manufacturing, Industrial and Construction Production sectors all reported contracting figures on Friday, while the swelling UK’s trade deficit sealed Pound’s fate. And if all that wasn’t enough, UK house price growth hit a four-year low!
With so many discouraging data for the UK economy in a single week, it’s a miracle GBPEUR didn’t collapse below 1.13 against Euro!
Perhaps, this is another proof of how much politically-driven Sterling is, given the impact politics had on the British currency in the past. Having been used to huge volatility caused by elections, Brexit negotiations and politics in general in the previous months, we’ve come to expect similar price action due to the below-par UK data. And it’s not just positive data that simply missed forecasts, but data showing UK economy is contracting more than expected!
This week, employment data is on schedule and average earnings are forecast to rise 1.8%. If that comes anything worse following the current trend in UK data releases, GBPEUR will probably dive below 1.29, setting up for a fall towards 1.10. Yet, even if the estimates are proven correct, there’s so much negativity circulating the British Pound lately, that GBP investors may eventually give up supporting the single currency and sellers take total control of the already bearish market.
It would need a really positive development for GBPEUR to escape the consolidating phase of 1.13-1.14 and rise, but this week shouldn’t provide one most likely. In fact, it poses to make things worse for Sterling.
Euro closed almost unchanged at 1.14 against the US dollar last week, dropping to 1.131 mid-week before Friday.
Euro, which has been rallying against the US dollar throughout 2017, is expected to slow down at 1.14 and might even reverse its course due to the strong resistance level established there. EURUSD last traded above that level for more than a month about 3 years ago and has tested 1.16 only twice since 2015. Still, the recent rally and strong Eurozone data has lately made analysts dare talking of a rise to 1.16 again. And to think that Euro traded for less than 1.04 USD only 6 months ago, those are mighty bold predictions.
Should Euro advance this week and appreciate significantly, it will not only penetrate the resistance level against the dollar, but put another nail in the weakening Sterling’s coffin, that will seriously struggle to keep above 1.13 as discussed above. And for that to happen, Eurozone’s economy just needs to continue releasing positive data or ECB to keep up with the hawkish tone. Something that they are both too accustomed to do recently!