GBP/EUR Exchange Rate Forecast for Next Five Days: Eyes on 1.1280
- Pound to Euro Rate Today (16-1-16): 1.1370
- Euro to Pound Sterling Rate Today: 0.8797
Pound Sterling has been in a downtrend against the Euro since the December highs and technical studies confirm the trend to be well established and therefore likely to continue.
Our technical call coincides with another bout of GBP selling, as markets continue to price in a UK exit from the EU's single market and customs union.
The exchange rate has broken below the January 10 lows at 1.1405.
We believe a break below here confirms a continuation down to the next target at the S2 monthly pivot at 1.1280.
MACD has moved below the zero-line and is poised to continue falling, supporting the bearish forecast.
Out expectations for Sterling to extend lower are echoed by analysts at Credit Suisse.
We report that analyst David Sneddon believes a fresh high has been established at 1.1532 which should resist any recovery potential; and beyond here resistance to any Pound Sterling strength lies at 1.20/1.2118.
Credit Suisse look for fresh weakness to extend back to 1.1294, then the 61.8% retracement of the 2015/2016 rally at 1.1132.
A break of 1.1050 is needed to open the door to a fresh look at 1.0635/22.
Events to Watch for the Pound
In the coming week, Tuesday, January 17 could be a significant day for Sterling, as it is when Prime Minister Theresa May will make an “important speech on Brexit’.
We have heard from analysts that the speech is unlikely to help stir a recovery in Sterling.
Those that think that a hard-Brexit is now fully absorbed into the price of the Pound need to think again.
HSBC warn of the prospect of a “diamond-hard Brexit: WTO trade rules, complete control over movement of people, and no more contributions to the EU budget.”
The GBP/USD will fall to 1.10 under this scenario say HSBC.
Deutsche Bank meanwhile suggest the GBP/EUR rate could hit parity.
Data-wise, UK inflation data is released on Tuesday, January 17, at 9.30 (GMT).
CPI is expected to come out at 1.4% year-on-year in December, up from 1.2% in the previous year, and 0.3% month-on-month.
A higher-than-expected rise in CPI could be positive for the Pound as it suggests the Bank of England might have to consider raising interest rates in coming months.
Higher interest rates tend to support currencies in that global capital inflows tend to increase as investors look for higher returns on their capital.
Wednesday, Jan 18 at 9.30 sees the release of Employment Data, including the Unemployment Rate, Average Earnings and the Claimant Count.
Earnings are expected to rise 2.6% rise in November, and the Claimant Count by 5.0k.
The Unemployment Rate is expected to come out at 4.8%.
On Friday, January 20, Retail Sales are scheduled for release at 9.30 and expected to show a 0.2% rise month-on-month in December.
Year-on-year, they are expected to show 7.2% growth in December.
Events for the Euro
The main event for the single currency will be the meeting of the European Central Bank (ECB), with the Press Conference at 13.30 GMT on Thursday, January 19.
Analysts will be looking out, predominantly for is any evidence that the ECB are considering winding down – or tapering - their money-printing programme.
If there is any hint of tapering, the Euro is likely to rise.
Continued steady growth in the region has led some analysts to see a chance that the ECB might begin discussing an end to stimulus.
Investors will be watching carefully to see if the recent improvements in Eurozone data is enough for the ECB to start discussing tapering.
Last meeting ECB governor Mario Draghi dismissed any talk of reducing stimulus, but BK Asset Managements Director Kathy Lien puts this down to the “ECB not wishing to jeopardize the fragile recovery by taking any steps that could reverse the uptrend in growth and inflation.”
Now that the recovery is more bedded down, however, she sees more chance of Draghi openly discussing an end to money-printing.
One month later, the economy has clearly improved with inflation and manufacturing activity on the rise.
“The weakness of the euro has gone a long way in supporting the economy and boosting inflation, leading ECB member Villeroy to say that growth will be solid in 2017. We believe that this is a view shared by a number of policymakers. According to the last ECB minutes, headline inflation is rising significantly giving the central bank more reasons to consider reducing asset purchases. Any recognition of tapering would be euro-positive,” says Kathy Lien, Director at BK Asset Management in New York.
Data-wise, Euroarea flash estimates for Manufacturing and Services PMI in January, are released on Tuesday, January 24 at 14.00 GMT.
