GBP/EUR Rate: Forecast for this Week

GBP/EUR has formed a large triangle pattern, clearly visible on the weekly chart.

It has just completed the fifth component wave – wave ‘e’ - triangles have a minimum of five waves, so this could be its last.

It is trading at the upper borderline of the triangle.

The 50-week moving average (MA) is at the same level.

Both are likely to present a tough obstacle to further upside progress and the exchange rate may rotate or founder at the current level.

The triangle is of the symmetrical variety and therefore provides no hint as to the direction of the eventual break, unlike other types such as right-angled triangles which almost always break in the direction of the flat edge.

Given the current short-term trend is higher, a continuation and breakout to the upside is more probable than not.

The Euro-area has important risk events that could undermine the EUR, particularly in the context of short positioning that is less stretched than in the GBP versus the USD,” says Nick Verdi at Standard Chartered. “A strong showing by Marine Le Pen in the 23 April first round of the French presidential election and a more-dovish-than-expected European Central Bank stance at its 27 April meeting could dent EUR sentiment.”

Verdi expects the GBP to "outperform the EUR over the next few weeks” as a result.

For confirmation of an upside breakout, we would ideally wish to see the exchange rate move above 1.1860, which would then open up an initial target at 1.2000, notwithstanding minor resistance from R1 pivot at 1.1921.

But we have noted that in the post-referendum period Sterling does not enjoy trading above 1.20 and has often turned lower in the run up to this level.

And with the EU summit on Brexit at the end of the month the prospect of some negative news for the Pound grows.

It would not be hard to convince sellers to step back into the market, paticularly if a mainstream candidate does win in France which remains the most likely outcome.

So while the Pound has the potential to move higher against the Euro, there are obstacles ahead.

Data Ahead for the Pound

The main data release for the Pound this week will be March Retail Sales, on Friday, April 21 at 9.30 B.S.T.

Expectations are not optimistic about the result due to recent disappointing Retail Sales data from the British Retail Consortium (BRC) overlapping the same period.

Analysts forecast headline sales to fall -0.2% compared to the previous month but to rise by 3.6% from the previous year.

Core retail sales expected to fall -0.3% from February and rise 4.0% year-on-year.

“U.K. retail sales are scheduled for release in the week ahead and while the uptick in wages points to a potential upside surprise, the British Retail Consortium reported weaker spending and after last month’s healthy rise, a pullback is expected. There’s significant resistance for GBP/USD between 1.25 and 1.2630,” says Kathy Lien, managing director of BK Asset Management.

"With analysts expecting a slight contraction in March retail sales. Any positive surprise could enhance GBP-bulls, while a disappointment could bring the Bank of England doves back to the market," says analyst Opek Ozkardeskaya at London Capital Group.

Data, Events Ahead for the Euro

The most significant event on the horizon for the Euro is the French Presidential election on Sunday, April 23, and for much of the week the most recent polls will dictate how the Euro trades.

We will be discussing France in more detail on Pound Sterling Live over the course of the week and the final opinion polls could well have a say on how the Euro trades.

As far as ‘hard’ data goes, however, the key releases will be inflation data out on Wednesday at 10.00 which is a revision on the March data.

Any big changes would likely impact the Euro, however this is unlikely. Headline annualised inflation is forecast at 1.5% and monthly is expected at 0.8%.

April purchasing manager surveys for manufacturing and services sectors are then released at 9.00 B.S.T on Friday, April 21.

Manufacturing PMI for April is forecast to read at 56, slightly down on the previous month's 56.2.

The Services PMI is forecast to read at 55.8, down on a previous 56 while the Composite PMI is forecast to read at 56.3, virtually unchanged on the previous month's 56.5.

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