Over Long Term Area High and Good for Renewed Gains

© Savo Ilic, Adobe Stock

– GBP / EUR over 1,1600 long-term ceiling

– As long as the market holds 1.16, the upside disturbance

– Brexit uncertainty remains to dominate the Pound; inflation Euro

The Pound-to-Euro exchange rate is set to start trading at 1,1617 Sunday after having fallen by half a percent last week, even though the pair remains above the long-term interval roof and charts indicate renewed winnings this week cannot be excluded.

Last week, Sterling fell upon Brexit's uncertainty, after Prime Minister Theresa May failed in his third attempt to get the EU recall agreement in the House of Commons.

There is now a risk that the UK will leave the EU without an agreement on April 1[ads1]2, which would be negative for Sterling. But there is also some opportunity for another Brexit referendum, or a general election is called in the coming weeks, which may be positive for Sterling if the markets see the opportunity for the UK's EU exit to be abandoned.

From a technical perspective The outlook for GBP / EUR is marginally bullish, as the pair remains above the key 1,1600 level, which is the long-term interval. If the market breaks down significantly below this level on a closing basis, it will be a bearish signal, but as long as it can be justified, renewable gains are possible in the coming days.

Above: Pound to euro price shown weekly weekly.

Another bullish factor is the Japanese hammer light that was formed the week before last (perimeter below). This is normally indicative of short-term gains, although the lack of performance in subsequent weeks suggests that this signal may not be very strong.

Overall, a pause of 1.1801 2019 high will probably give a green light for a continuation higher up to a goal of 1,1960.

Over: Pound-to-Euro interest. Japanese Hammer candlestick pattern.

The daily chart also shows how the pair has pulled back to the top of the long-term area, stopped and then reversed higher. This is a further proposal for a bullish perspective.

Sterling has moved sideways since mid-February, within a smaller area that looks very much like a consolidation pattern. Given the previous trend up, a higher break is marginally more likely than lower.

Momentum, measured by relative strength index (RSI), is decreasing. This may be a sign that the couple is deteriorating further, but it is a secondary signal and not enough to change the overall perspective. [19659000]

Above: Euro to Euro price shown at daily intervals.


The Pound: What to see

The main event of the week ahead of the pound sterling will be the opening of a new chapter in the brexit saga, with markets which are now focused on April 12 as the new deadline for the UK's withdrawal to be formally agreed.

Prime Minister theresa may now stand as a choice between pursuing a so-called no-agreement Brexit, and requesting the EU further extension of the negotiating window in Article 50 which almost certainly requires participation in the elections to the EU Parliament.

There is still no way to rule the majority of the House of Commons, although MPs who have attempted to control the Brexit process from the government will have another chance on Monday to force the government to pursue a future relationship model they find more tasty.

Some of the ideas put forward by MEPs include a "permanent customs union", the recall of Article 50 and another referendum among others. All of these options are likely to resist fierce opposition from the minority of Brexit's parliamentarians, while also being electrically controversial.

There is also an opportunity Theresa May could try to hold a fourth vote on her revocation agreement, even though it is still seeing if she can win or not.

Apart from the Brexit drama, the IHS Markit PMI surveys in March will also be released, although they will probably not have a major impact on Sterling given the market's cumbersome focus on Brexit.


Euro: What to see

The main issue in the week ahead for the euro is inflation data released at 10 am on Monday. Consensus is for inflation of 1.5% in March, unchanged from February. Core inflation, leaving behind volatile fuels, food alcohol and tobacco components, is expected to fall to 0.9% from 1.0% in February.

Inflation is important for the euro because it informs the central bank's interest rate policy and this influence currency.

Mario Draghi, president of the European Central Bank, said in a speech last week that he expects the ECB to keep interest rates low for a while, even though inflation is already too low, and now the economy is slowing down. Inflation is a function of demand, so when the economy slows, price pressure tends to weaken.

The release of the minutes of the ECB's political meeting, at 12.30 GMT, on Thursday, will be another important moment of the week ahead. This will reveal the deliberations of the board during the last meeting and could be useful as a yardstick for what they can do next. The risk is that growth problems become so acute that they pivot the policy towards increased accommodation and completely depreciate interest rates at present.

Unemployment has been one of the bright spots in the Eurozone data, and it is expected to show a 7.8% increase in the week before – the same as the previous result. There is a risk that it may be better than expected that will support the euro.

Retail sales figures for February are out on Wednesday, and are expected to show a 0.2% increase compared to 1.3% earlier in a month-to-month and 2.0% from 2.2% year-on-year increase. Retail is a major contributor to total GDP, so if the data is better than expected, it can support the euro and vice versa if it is worse.

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