Latest GBP/EUR Exchange Rate Forecast: Three Black Crows Tech Formation Give Clues

The British Pound is seen edging higher agaisnt the Euro at the start of the new week being quoted a quarter of a percent higher on the week's open at 1.1717. 

Recall that the conversion dipped to 1.1638 in the previous week and the positive start to the new week will be seen as a sign that Sterling's broader recovery - in place since mid-January lows at 1.13 - is still alive.

Note though that the exchange rate has so far failed to extend beyond a high at 1.1828 reached earlier in February.

Concerning the near-term technical outlook we believe the GBP/EUR rate is likely to struggle from here with us observing the formation of a bearish Three Black Crows Japanese candlestick pattern following three down-days in a row.

A Three Black Crows pattern is a bearish candlestick pattern that is used to predict the reversal of the current uptrend. This pattern consists of three consecutive long-bodied candlesticks that have closed lower than the previous day with each session's open occurring within the body of the previous candle.

Furthermore, the pair broke below the trendline drawn from the January 16 lows on Friday although it subsequently recovered and finished the day as a Doji-like bar of indecision.

The big question for traders now is, will the pair recover and move back up to the 1.18s or will it continue breaking lower consolidating Friday’s probe below the trendline?

Due to Friday’s indecisive and rather weak close, as well as the bearish inclination of the MACD, however, we think the probabilities favour a continuation lower.

We see a break below Friday’s 1.1633 lows as confirming an extension down to the next target at 1.1590, just above solid support from the monthly pivot (PP).

Data, Events to Watch for the Pound Over the Next Five Days

From a hard data perspective, the week kicks off with the CBI Industrial Trends Survey in February on Monday at 11.00 GMT, which is supposed to produce a 3 from a 5 previously.

There then follows GDP data on Wednesday at 9.30, however, these are revisions from preliminary estimates already published, and are not expected to diverge.

At the same time as the GDP is released we will also see key Business Investment stats for the fourth quarter, which will tell the level with which Brexit concerns are restraining investment, although this has not particularly been the case up until now.

On Friday, February 24 meanwhile we shall see the release of Mortgage stats from the British Banker Association (BBA).

The UK focus seems more likely to shift back to politics over the coming week as on Monday Parliament reconvenes after its February recess.

The House of Lords will begin debating the government’s bill to enable the activation of the Article 50 process to leave the EU.

The bill emerged unscathed through the House of Commons, and the Lords seem likely to make only modest tweaks.

“But the amendments do not seem likely to endanger the government’s end-March timetable for activation. Depending on the extent of the proposed changes, activation could even coincide with the EU Council meetings scheduled for 8-10 March,” says Sawicki.

Should the Lords succeed in making amendments to the Bill we would expect this to be positive for the UK currency.

We have seen over recent months that markets tend to like the idea of increased parliamentary scrutiny as it suggests a ‘softer-Brexit’ is a likely outcome.

Data for the Euro

The big release for the Euro in the week ahead will be Eurozone manufacturing and service sector activity data in the form of PMIs for February at 09:00GMT on Tuesday, with consensus expectations for a modest decline.

Monday’s Consumer Confidence Flash estimate for February, however, is another significant event, which is expected to show a decline of -4.7 from -5.0 previously.

Wednesday's IFO survey data is a useful leading indicator for the whole of the Eurozone even though it is predominantly concerned with German business confidence.

The week rounds off with commentary from ECB’s Praet on Thursday, although, he is likely to maintain the dovish tone of the minutes.

A big theme to watch out for going forward is whether or not the ECB will withdraw its stimulus programme in 2017.

Recall that it is the massive money priting programme (known as the Asset Purchase programme), alongside the cutting of interest rates, that have resulted in the Euro being as low as it currently is.

When these policies are reversed, it goes that the Euro will rise to a fairer valuation dictated by the German economy.

But because the ECB is reluctant to go down this route just yet the shared currency is likely to struggle.

“The benefits of a weaker currency are beginning to fade, which explains why the ECB remains cautious. According to the minutes released this past week, there was widespread support for a steady policy stance. With multiple elections happening in the Eurozone and the uncertainty surrounding the current US presidential administration, the central bank felt the need to maintain easy monetary policy,” says Kathy Lien at BK Asset Management.