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– GBP / EUR is still fragile as it is below 1.1600
– The pair could form a bearish pattern
– The book will be conducted by the BOE meeting; Euro by GDP
The pound / euro exchange rate will open at 1.1567 at the start of the new week, a tenth more than the previous week, but 0.3% lower than a month ago.
From a technical point of view, the decline below the highest keys of the range to 1.1600 has turned the bullish outlook to neutral.
The pair has experienced four consecutive weeks of decline after the March spike, which is a negative sign that predisposes it to additional weakness.
However, according to RSI, the downward momentum is not particularly strong, neither on the weekly charts nor on the daily charts, suggesting that the slowdown in April may simply be a pullback rather than a reversal.
The trend that has formed at the peaks of the daily chart is very likely very varied. It looks like a double downside or a point of support. A break below 1.1463, March 21st low – or the "neckline" pattern – would confirm a greater disadvantage.
Such a breakup would probably mark a more marked decline in the next major goal at 1.1350, where the 50-week MA is located and is expected to provide support. This could happen in the coming weeks.
The pair rallied to the highs of the 1.600 range last week. He established a set of highs and lows on the 4-hour chart of the process. If it exceeds the highs of 1.1595, it will set another series of higher ups and lows higher, which would provide evidence of a reversal of the trend.
Even if a pullback above these highs would potentially return the uptrend again, the 50 day MA at 1.1612 would likely provide a fierce resistance requiring a break above – confirmed by a move above 1.1640 – to establish a new upward trend, initially targeting 1.1700. This could happen in the next 1-2 weeks.
Of course, a break above the 1.1802 highs would be an even stronger bullish sign and would likely confirm a continuation to a goal set at 1.1930 at 200 weeks MA. This could well happen on a horizon of 1 to 5 months.
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The book: what to watch this week
The main event of the book is the Bank of EnglanBOE meeting which will end with an announcement on Thursday at 12:00 BST.
The BOE is not expected to raise interest rates at the meeting, despite strong economic data. Real growth remains moderate at 1.2% (the lowest since 2009) due to growing business uncertainty due to Brexit. It is therefore unlikely that the Bank will change its rates until greater clarity has been forthcoming.
Despite rumors of rising rates in August, Reuters polls forecasts will not change before the start of 2020, a calendar quarter later than expected a month ago.
The search for a new governor to replace Carney in October adds to the uncertainty.
The BOE will release its quarterly inflation report at the May meeting, which includes the latest economic projections, which should attract more attention than usual and perhaps even generate more volatility.
The pound sterling is unlikely to react strongly to the BoE's decision, but any dovish bidding by the World Bank – meaning clearly in favor of falling interest rates – could weigh on the pound, which fell a 10-week low against the US dollar this week.
Lower interest rates or a threat from them may be negative for a currency as they affect foreign investment inflows, which tend to favor jurisdictions that can offer higher returns.
PMI data
The other major release of the coming week is the PMI release for April. These can be closely monitored as they have recently fallen into contraction territory defined as a reading below 50. They are considered a leading indicator of the economy, raising concerns about the weakness of official economic data. .
Although British official data have not yet followed in their footsteps, another dark set of PMI indicators could increase risk.
The manufacturing PMI is available Wednesday at 09:30.
In March, the PMI index rose due to the storage being done by companies that were preparing for a potentially disruptive Brexit, rather than a real growth. The forecast number per market is 53.2, down from 55.1 the previous month.
The construction PMI fell to 49.7 in March and is expected to rebound to 50.4 in April when data will be released at 9:30 am on Thursday.
The UK PMI services is the big number to watch as it's an area that accounts for over 80% of the UK's economic activity.
The previous month, the PMI services index had dipped below 50 and it has plummeted to 48.9 in March, but data released Friday at 9:30 am should point to a rebound to 50.4 in April. If that disappoints, the pound could suffer.
Brexit remains deadlocked
Brexit could also be a driving force for the pound in the coming week. Discussions between the government and the opposition Labor Party have not made much progress. At the same time, Premier Theresa May is trying to resign. If she goes, the pound will collapse.
On the other hand, the announcement of a joint agreement with the Labor Party could pave the way for a stronger pound. This seems unlikely, however, given the adversarial political system in the United Kingdom, which does not favor bipartisanship.
It seems that Labor has little incentive to help the Conservatives get out of their self-destructive tour de force in Europe. Whatever the case may be, there is probably more chance of greater uncertainty in the short term, not less, as Corbyn is more likely to wait for his time and watch the conservatives be their worst enemy than any other. To help Theresa May get out of her current impbade.
The euro: what to watch
The main event of the euro over the coming week is the preliminary estimate of GDP growth Tuesday at 10:00 BST.
Those who expect a similar result to those of the United States and China, who have recently presented strong surprises on the rise, may be disappointed. Growth in the euro area is not expected to grow at the same pace.
On an annual basis, it is expected to increase only 1.1% in the first quarter compared to last year and 0.3% from 0.2% previously on a quarterly basis.
"A worse figure than the lack of growth over the period would reinforce the pessimism of the eurozone economy," says FX Broker economist Raffi Boyadijian XM.com.
Business confidence data released Monday at 10 am is a key element for the euro. It should come out at 0.49 vs. 0.53 previously.
The unemployment rate in the euro area in March is expected to remain unchanged at 7.8% after its publication at 10 am Tuesday. As employment is a relative strength for the euro area, a deterioration would worsen the region's concerns.
Instant inflation figures for April will be released Friday, as well as producer prices for March. Inflation is expected to reach 1.6% and 1.1% for general figures and core values, against 1.4% and 0.8% respectively.
Inflation informs the level of the European Central Bank (ECB) sets the interest rates that have a significant impact on the euro. Higher interest rates or the expectation of these tend to support the euro while, conversely, the lowest rates.
"A combination of disappointing results in terms of GDP and inflation would be the worst result for the euro, which has collapsed below its main support around $ 1,1180 this week", Boyadijian said.
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