Our GBP/EUR Forecasts See Potential for Notable Break Lower

Heading into the final plays of 2016 the GBP to EUR conversion is looking increasingly heavy.

The GBP/EUR pair has spent almost 2 weeks consolidating on support from the S2 Monthly Pivot at 1.3730. 

The pair appeared to be pushing marginally lower with each day on the back of strong European data, in particular the higher-than-expected CPI data which was 0.1% higher than forecast (both mom and yoy) in November (final estimate). 

Poor wage data from the U.K had also supported a decline after it weighed on the pound midweek, however, a recover got underway on Thursday following a much better-than-predicted boost in Retail Sales which rose 5.0% yoy in November versus the 3.0% consensus estimate.

From a technical POV, price action is reflecting the data-driven ups and downs of the week, by oscillating sideways for 9-days, with that slight euro-positive downside bias. 

The Charts

Technically-speaking, the odds favour an eventual downside break since the short-term - and probably mid-term trends are now marginally bearish. The main evidence of this is as follows:

Peak and trough progression has reversed lower. 

The pair has successfully broken below the 50 and 200-day MA’s.

Forecast

The pair is expected to continue its infant down-trend lower, with a break below the current range lows at 1.3675 providing a pretty strong confirmation that the pair has definitively broken below S2 and is going lower.

Such a move would be expected to reach a target at the key 1.3575 lows.