Pound-to-Euro Rate in the First Week of 2018: Technical Forecast and Data to Watch
The Pound-to-Euro exchange rate is showing short-term bearish and longer-term bullish potential, and in the first week of week of 2018 Manufacturing and Services sector data from the U.K. and Eurozone Inflation data dominate the economic calendar.
Our latest technical studies of the Pound against its Eurozone counterpart confirm the exchange rate to be moving lower within a large sideways range.
As we enter the new year we identify GBP/EUR to be falling within a broader range which has developed since late September; but longer-term we still expected Sterling to eventually break out of this range and move higher towards a target at 1.1660.
To be more precise, the exchange rate is currently forming a wave 'e' which is forecast to potentially reach the range lows at about 1.1175 before reversing and turning higher.
A break below the December 25 lows at 1.1230 would confirm an extension lower.
Most range-bound consolidations such as this are composed of a minimum of five waves so “e” could very well be the last one before the breakout.
Once wave 'e' is complete the pair is expected to move back up within the range towards the highs in the late 1.14-1.15s.
The R1 monthly pivot is situated just above the range highs at 1.1514 and could provide resistance to any further upside since traders often anticipate resistance at these levels, which leads to increased order flow around them as speculators attempt to make a quick profit.
A clear break above R1, confirmed by a move above 1.1545, however, would see the exchange rate properly break out of the range and move up towards a target at 1.1660 just beneath the R2 monthly pivot at 1.1665.
As a general rule range breakouts move about the same distance as their height extrapolated higher from the point of the break.
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Data and Events to Watch for the Pound
The main release in the coming week for the Pound will be key purchasing manager survey data assessing the health of the three main sectors of Manufacturing, Services, and Construction in December.
These releases are officially known as the PMI (Purchasing Manager Indices) and they are out at 9.30 GMT on Tuesday, December 2 for Manufacturing and Wednesday and Thursday at the same time for Construction and Services respectively.
Manufacturing is expected to have fallen from 58.2 to 58.0, Construction from 53.1 to 52.7 and Services to have remained unchanged at 53.8.
Data and Events for the Euro
The main release for the Euro in the week ahead is Eurozone inflation data for December, which is out at 10.00 GMT on Friday, January 5.
Inflation data is forecast to remain unchanged at 1.4% but if it rises above what is expected then it will support the Euro, and vice versa if it falls.
Higher inflation tends to lead to higher interest rates which attract more inflows of foreign capital, drawn by the promise of higher returns, and this, in turn, strengthens the currency.
The other main set of release in the coming week is key purchasing manager survey data assessing the health of the two main sectors of Manufacturing and Services in December.
Manufacturing PMI, as it is known, is out at 9.00 GMT on Tuesday, December 2 and is forecast to stay unchanged from November at 60.6.
Services PMI is out at 9.00 on Thursday and is forecast to stay at 56.6.
Because of the close proximity of the Euro-area and UK PMI releases they tend to create volatility in GBP/EUR when they move in opposite directions.
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