Pound-to-Euro Rate Technical Forecast, Events and Data to Watch for the Coming Week

Pound Sterling's run higher against the Euro will be tested this week by some key resistance points observable on the technical charts while the Bank of England's Mark Carney, Prime Minister Theresa May and the release of retail sales data fill the fundamental calendar.

The Pound-to-Euro exchange rate has surged higher following rhetoric from the Bank of England (BOE) which suggests officials are much closer to raising interest rates than previously thought.

Our studies suggest the move higher will probably continue in the week ahead owing to the positive momentum seen in the market.

But we also observe several levels situated just above the market level which will be tough obstacles to overcome.

These resistance points include the R2 monthly pivot at 1.1404 (current market level 1.1381) and the 200-week moving average (MA) at 1.1484:

These levels will be difficult to break above, particularly the moving average.

Monthly pivots are levels where traders often fade the trend and so prices often pull-back, stall or even reverse at them, however, this particular market is so strong the level could be ignored in this case.

Nevertheless, we would ideally wish to see a break clearly above the R2, confirmed by a move above 1.1430, before expecting a continuation higher to the next target at 1.1480.

If the pair breaks clearly above the 200-week (and 200-day not far above), confirmed by a move above 1.1550, then it could probably reaches the next target at 1.1700.

So strong is the uptrend, however, that our view is that in the week ahead the pair will probably go higher, or if not then will enter a bullish sideways market as traders consolidate their positions ready for the next move higher.

The MACD momentum indicator is favouring the new uptrend with its own equally sharp rise in bullish momentum, and now that it has crossed the zero-line has officially classified the trend as 'up'.

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Data, and Events to Watch for the Pound

The Bank of England's Mark Carney will be speaking at 16.00 on Monday, September 16, in Washington DC.

With Bank of England policy being the predominant driver of Sterling at present, the comments will be closely followed for any further clarification of policy trajectory.

He is unlikely to deliver a radically different message with regards to UK monetary policy to the message which came out at Thursday's policy meeting. He will also avoid contradicting his comments made to a press pool hours after the event in which he indicated he is part of that group of policy-makers that believe an interest rate rise in the near-future is necessary.

There is the chance that he might push back against the recent market assumption that rates will be raised in November which would be negative for the Pound; but such a move would be too risky at this stage as it would certainly cloud the picture with regards to monetary policy.

The Bank's message must be clear and unanimous in scope at this juncture, and we doubt Carney would compromise with any message other than interest rates are to rise in the near-future.

Data-wise, retail sales out on Wednesday, September 20 at 09.30 BST, will provide fresh insights on consumption trends. 

It is forecast to rise 1.1% year-on-year in August (from 1.3% previously) and Core is expected to rise 1.3% from 1.5% a year ago.

The recent rise in the number of people in work, "should provide some support to consumer spending, with the jobless rate falling to its lowest since 1975," said IHS Markit's Principle Economist Bernard Aw.

"However, wage growth remains stubbornly low despite the hiring surge, which could continue to weigh on household spending," he added.

A beat on expectation should reinforce the fresh positive stance adopted by markets with regards to Sterling's outlook.

IHS Markit's Household Finance Index, a survey of house holders finances, out in the week ahead, could also be useful in measuring the pressure on consumers.

On the political front, all eyes will be on Prime Minister Theresa May when she delivers a major speech on the UK's Brexit stance in Florence, Italy on Friday 22.

The speech will be keenly watched by markets for signs that the UK will yield further concessions, or even creative ideas, to push Brexit talks forward.

Such an outcome would certainly be positive for Sterling which is remains weighed down by the uncertainty surrounding the Brexit process.

The speech will also provide domestic political intrigue in that the speech will be made nearly a week after Foreign Secretary Boris Johnson wrote a lengthy article for the Telegraph newspaper in which he laid out his vision for Brexit.

Some have interepreted the speech as a direct challenge on May's leadership.

We doubt this to be the case and would suggest it is rather a rallying call to the British public at a time when confidence regarding the Brexit process is low.

Indeed, a leadership challenge opens the door to fresh elections which in turn raises the spectre of a Labour party victory and the opening of a pandora's box of market-negative policies which bode ill for Sterling's long-term valuation.

Data and Events for the Euro

The general consensus is that the main releases for the Euro-area in the coming week will be flash estimates of Purchasing Manager Surveys in September, out on Friday at 9.00 BST.

The PMI's could influence the European Central Bank's (ECB) plans to wind down stimulus in October, as the termination of stimulus (which would be Euro positive) may be dependent on how well the PMI's portray the economy in September.

"Of these reports, the PMIs are the most important and they will be released on Friday," said BK Asset Management's Kathy Lien, adding the insight that:

"This means the front of the week, EUR/USD could be driven by dollar flows but towards the end, the market may shift its focus back to the Eurozone economy."

The same may also be true of GBP/EUR where the Pound may be in the driving seat at the start of the week, and the Euro taking over towards the end.

Euro-zone CPI, out on Monday is unlikely to rock markets as it is the final estimate for inflation in August; the flash having already been released.

The ZEW and European Commission surveys of economic sentiment, out at 10.00 on Tuesday, September 19, will also be watched for clues to the health of the eurozone economy.