Pound-to-Euro Exchange Rate 5-Day Forecast: Outlook Improving, Cross-Party Brexit Talks Key
Image © John Gomez, Adobe Stock
- GBP/EUR now showing bullish setup
- Break above 1.1802 highs to confirm extension
- Cross-party Brexit talks to dominate for Pound
- Eurozone retail sales in focus for the Euro
The GBP/EUR exchange rate opens the new week at 1.1719, off the highs of last Friday but still nearly a percent higher than was the case at the same point a week prior.
Pound Sterling is off a one-month best against its European counterpart on speculation that the crushing defeat inflicted on the Conservatives in the local elections saw speculation grow the government is ready to offer further compromises to Labour that would allow the two sides to strike a Brexit agreement this week.
It's not just the Conservatives who need the vexing Brexit question answered: so do the official opposition Labour Party.
On Friday Sterling surged higher, boosted by comments made by Labour Leader Jeremy Corbyn that lawmakers need to “get a deal done” as the electorate was losing patience. His comments were interpreted as heralding a greater willingness to make compromises on the Labour side.
The fundamental basis for further Sterling advances are therefore certainty visible, but is the market technically inclined to deliver such gains?
From a technical perspective, the forecast for GBP/EUR has shifted to neutral and conditionally bullish on a break above the 2019 highs.
The pair has broken clearly back above the key 1.1600 level of the long-term range ceiling, and we remain of the view that a break above the 1.1802 would probably provide the green light for the next leg up to a target at 1.1900, just below where the 200-week moving average (MA) is likely to cap further gains.
Of course, there remains the threat that a break back below the key March 21 lows could push the exchange rate lower and signal a bearish reversal, with a target at 1.1360 and the 200-day MA, but this threat has receded due to the sheer strength of last week’s rebound.
GBP/EUR has formed a sideways consolidation since the middle of February and because it was rising prior to its formation its bias has always been to breaking higher rather than lower. The strong rebound last week erases bearish doubts which crept in after the pair broke down below the 1.1600 range highs.
Momentum, as measured by RSI, is rising sharply on the daily chart, although it does not look nearly as bullish on the weekly chart.
The 4hr chart is showing further evidence a short-term bullish trend is forming. The pair has formed more than two sets of higher highs (HH) and higher lows (HL) - one of the signs analysts use to evidence the start of a new trend.
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The Pound: May's Concessions to Corbyn, GDP
We expect Brexit to remain the major mover of the Pound over coming days as this week has been set as the deadline by Prime Minister Theresa May for a deal between Labour and the Conservatives to be agreed.
Reports over the weekend suggest May is prepared to offer Labour fresh concessions to allow the two sides to come together.
According to Tim Shipman, political editor at The Sunday Times, "Theresa May will take a final desperate gamble to deliver Brexit this week by offering Jeremy Corbyn three major concessions in a bid to force MPs to back a new deal."
On Tuesday, May is being tipped to make a “big, bold” offer to Labour.
This could well be the point at which we find out whether a cross-party compromise is possible.
However, there are fears the PM's offer "could split the Conservative Party down the middle," says Shipman.
Labour are demanding the UK enters into a customs union with the EU following Brexit, which would mean the country is unable to strike independent trade deals which has been a key test of Brexit for many in the Conservative Party.
Labour and the Conservatives might well strike a deal but both parties are deeply divided over the issue and therefore even a deal does not necessarily a majority in the House of Commons can be secured.
So while the news pulse has turned positive for Sterling over recent days, there are clear limits as the risk that no deal is done and the Prime Minister resigns remains substantial we believe.
The main economic release for the Pound is preliminary GDP data for the first quarter, out at 9.30 BST on Friday, May 10.
This is expected to show a 0.5% rise compared to 0.2% of Q4 which would suggest the economy remains robust in the face of the ongoing Brexit saga. On an annualised basis i.e extrapolated to provide a yearly estimate, GDP is expected to have rise 1.8% compared to the 1.4% previously.
Other key releases out at the same time are the trade balance for March, manufacturing production for March, industrial production for March and business investment (Q1).
Business investment is expected to remain especially subdued as it is one of the facets of the economy hardest hit by Brexit.
Another important release is Halifax house prices out at 8.30 on Wednesday, and speeches from the Bank of England's Cunliffe and Haldane on Tuesday evening.
The Euro: What to Watch
The Eurozone ended its run of poor data last week after first quarter GDP data beat expectations, coming out at 0.4%, up from the 0.2% of the previous quarter and the 0.3% forecast.
This week could traders will be looking for confirmation that the Eurozone economy is in fact improving after months of stale underperformance that has seen the European Central Bank (ECB) row back on its commitment to raise interest rates in 2019.
German industrial production for March will be in focus on Tuesday at 07:00 B.S.T. where analysts are forecasting will fall by -0.7% month-on-month from a rise in the prior period of 0.7%.
The release could “reaffirm the need for caution” says Raffi Boyadijian, ana economist at broker XM.com.
A beat of expectations could however prove supportive for the Euro given the market's entrenched negativity on the German and Eurozone economies.
Monday is when most of the key releases for the Euro come out. Retail sales are out at 10.00 BST, and are estimated to have declined -0.1% on a monthly basis in March, from 0.4% previously, and 2.3% on a yearly basis from 2.8% previously.
The final estimates for services and composite PMIs are also out on Monday, at 9.00. They are forecast to decline slightly to 52.5 and 51.3 respectively in April.
The other key release in the week ahead for the Euro is the release of ECB minutes from their most recent policy meeting on Wednesday at 12.30. These are expected to underscore the dovish tone of the meeting statement and press conference by ECB President Draghi out on Wednesday, April 10.
“The European Central Bank’s minutes of the April policy meeting are unlikely to generate much reaction either on Wednesday. Given that policymakers did not discuss introducing a tiered system for the deposit rate and there were no new economic projections available, the minutes are anticipated to produce few surprises,” says Boyadijian.
Time to move your money? Get 3-5% more currency than your bank would offer by using the services of foreign exchange specialists at RationalFX. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency. Find out more here. * Advertisement