Outlook for GBP/EUR X-Rate: Monthly Chart Gives Bullish Signal
Pound Sterling remains tied to familiar levels against the Euro with 1 GBP = 1.1715 at the time of writing on Thursday.
There is nothing by way of data on the agenda until a slew of industrial and trade data due out on Friday.
With Brexit also fading as a driver of Sterling markets are left moving on technical and external considerations.
The Euro retains a heavy tone as markets continue to price in the political risks associated with Eurozone elections in 2017. French elections are at the forefront in this regard with some suggesting the Euro could fall by as much as 10% were Marine Le Pen to clinch France's top job.
Technically, the outlook continues to favour Sterling to a degree.
The GBP/EUR exchange rate completed an a-b-c correction on the daily chart and has since started rising.
It is currently trading in the 1.1730s but has not yet reached our target at 1.1800.
The 50-day moving average is providing an obstacle to more upside at 1.1720, however, we think that on balance the risks support a continuation higher to our original target.
The monthly chart is supporting a bullish outlook during the month of February after completing a ‘one step forward, two step back’ pattern (circled) which has a 66% probability success rate of indicating that the month is going to close higher.
This pattern is basically composed of a strong green up bar followed by two weaker down bars and indicates an increased probability that the next bar will be higher.
It works on daily, weekly and monthly charts, but is more reliable on higher timeframes.
The monthly MACD is also arguably turning higher indicating potentially more upside on the horizon.
The monthly chart suggests that the tide is up and since it is best to swim with the tide we recommend waiting for our move to extend up to a target at 1.1800.
Looking ahead, keep an eye out for industrial production data due out from the ONS at 09:30 on Friday February 10.
Markets will be looking for confirmation that the UK's growth remained robust into the end of 2016 with a reading of 0.2% growth.
Manufacturing production is due out at the same time and the figure expected here is 0.5%.
The ONS also release trade statistics and this will be important for economists trying to gauge whether the weaker Sterling has boosted the UK's exports.
A deficit of 11.5BN is expected but anything better could suggest the economy is rebalancing in the right direction.
The UK currently suffers one of the largest current account deficits in the developed world, i.e it imports more than it exports. This leaves Sterling vulnerable at times when confidence is low, as is the case ahead of Brexit.
But were exports to pick up this deficit would close and the outlook for Sterling would be more assured.
