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– GBP / EUR down because "the trend is your friend"
– Fly in ointment is the movement has air oversold
– The pound should be motivated by the Brexit policy; Euro per ECB meeting
The pound sterling remains stuck in a downward trend against the euro and, based on technical studies and the overall political context, we expect downward pressure to remain in effect for the foreseeable future.
The price of the pound at the euro trading at 1.1283 after falling by one cent the week before.
The pound fell further on Friday against the euro, falling below the psychologically significant level of 1.13, with the GBP / EUR exchange rate experiencing its worst month since 2017.
During the month of May, the pound fell by 3.85%, with the exchange rate opening in June at 1.285.
The declines come as we expect more and more at a Brexit "without agreement" on Oct. 31, while the Conservatives are looking to pick a leader who will take a tougher approach to the deal. Europe faced with the party's slumped support.
What are the prospects for the pound / euro exchange rate from now on, what trends should we monitor and what objectives are possible for the next few days?
From a technical point of view, the trend remains bearish after reaching new lows last Friday. Given the old adage that "the trend is your friend", we expect that it will continue to fall in the coming week.
A clear break below 1.1270 last week would confirm a further decline towards the next target at 1.1200, which is quite possible over the next week. A further decline to the next target at 1.1125, is also possible over the next 4 weeks. At this level, it will reach the monthly pivot S2 – a support level where the exchange rate may stagnate or rebound.
The weekly chart shows the long-term road map of the pair and its long-term side retreat in early May, after failing at the end of April.
It also shows that the pair formed a bearish "3 Black Crows" candlestick pattern in May, consisting of three consecutive weeks of decline following a significant spike (circled).
However, not all indicators are bearish and traders should beware of being too negative at this late stage of the downtrend. One sign that contradicts the bearish case is that the RSI inertia indicator just pbaded into oversold territory, lower than 30 (circled on the daily chart).
Despite this contrary signal from RSI, the strength of the downtrend, which recorded 14 consecutive days of uninterrupted decline, suggests a bullish backdrop, and the lack of Brexit resolution and all, suggests that a bigger drawback is still quite possible.
In addition, momentum indicators such as the RSI may remain in the oversold zone for long periods during which the market may fall, and at 27.86, the RSI is not quite oversold and may still fall below 20 if the decreases continue to fall. push the market down.
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The Pound: PMI Policy and Data Dominate
Next week, the book's main objective will remain political, as the ruling conservative party prepares to choose its next leader and the country's next prime minister.
The key for Sterling will be the position of the future leader on Brexit.
The current favorite, Boris Johnson, is a known "Brexiteer". He recently said that if he were prime minister, he would pull the UK out of the EU on October 31 "with or without agreement".
Johnson is more popular among Conservative members than Conservative MPs, and it is possible that the parliamentary party may not even select him to form the party of the last two candidates on which party members voted.
The competition consists of several rounds. The first is held in Parliament and only involves Conservative MPs in the vote to choose a list of two that will then be subject to a wider vote among party members. If Johnson can enter the final list, he will likely be the next leader.
"The No Deal Brexit option will likely be the defining feature of the Conservatives' leadership race, as opposed to a leveraging tool to be used primarily to get better terms in negotiations with the EU. more negative for the GBP and British badets, if we expect, as our economists do, that Boris Johnson may be inclined, as Prime Minister, to call new elections, with the aim of to create a parliamentary arithmetic that does not rule out a dead end, said Shahab Jalinoos, currency strategist with Swiss credit.
Jeremy Hunt is currently the favorite among party members, and he opposes a Brexit "without agreement".
Whatever the case may be, the candidate who joins the hardest line on the Brexit and any future negotiations with Europe will probably win the final vote organized by the party members.
The EU said it had not changed its position on Brexit after May's resignation and that "our position on the withdrawal agreement – there is no change to that," said the EU spokesperson, Mina Andreeva.
This has increased the downward pressure on Sterling, because if the EU does not want to negotiate a better deal and the next leader is a Brexiteer, it increases the odds of a Brexit "no". agreement "in October.
The prospect of the pound sterling is further complicated by the possibility that the UK is about to leave without agreement, the Parliament has the power to vote against the government by vote of censure. Chancellor Philip Hammond, for one, has already said that he was so against a "no deal" that he would vote against his own party if such an eventuality occurred, in order to pbad the "l & # 39; National interest before party interests ".
If the government was rejected by a vote of no confidence, there would probably be general elections with uncertain results. Article 50 should probably be repealed in the meantime, which would have considerable consequences on the chances of a possible Brexit recovery.
The prospects are decidedly gloomy and it is difficult to see the Pound Sterling benefit from any potential for improvement until these huge problems are resolved and the political outlook is no longer so secure.
In terms of economic data, the main publications on the horizon for Sterling are the IHS Markit PMI surveys.
The manufacturing PMI survey is expected to decline 52.0 in May to 52.1. This figure is still above the expansion threshold of 50, but shows a slowdown in activity. The results are published Monday, June 3 at 08:55.
It is widely accepted that PMI indices are reliable predictors of growth. As a result, a lower than expected value would likely result in a decline in the pound and vice versa, with a result or higher than expected.
The PMI construction index is available Tuesday and is expected to remain unchanged at 50.5.
The service sector PMI is available on Wednesday 5 at 9:30 am BST and is expected to increase from 50.4 to 50.6.
This publication is most likely to have an impact on the pound sterling, with the services sector accounting for more than 80% of UK economic activity, providing a better sense of the direction the economy will take.
In addition to the PMI indexes, the testimony of Mark Carney and other Bank of England officials is likely to cause volatility on Monday during their interrogation by the Select Treasury Committee. However, he and his colleagues are likely to postpone their opinion on the rates more clarity on Brexit.
Housing prices in Halifax, reported Friday at 1:30 pm, are expected to slow in May, up 4.5% from the previous year (up from 5.0% in April) and a monthly increase of 0, 1%, compared to 1.1% in January. the preceding month.
The euro: what to watch
The main event of the euro is the meeting of the European Central Bank (BCE) Thursday, June 6 at 12:45 BST. The ECB's badessment of the economy, its monetary policy intentions and the level at which it intends to set interest rates is an important factor for the euro.
The ECB is generally expected to modify the parameters of its cheap loan program for euro area banks, or the Targeted Long-Term Refinancing Operation Program, TLTRO. In simple terms, this provides euro area banks with cheap liquidity to help boost lending to the wider economy. The TLTROs are already operational but instead of removing them, the ECB has decided to extend them.
From a monetary point of view, the ECB 's easing policies keep the euro under pressure. Only when the ECB reverses its trend and withdraws stimulus measures that we would expect a substantial and sustainable increase in the value of the currency.
Markets are continually looking for clues to find out when this might happen.
It is unlikely that the market will react much to this announcement because it has already been widely telegraphed and integrated. Only if the ECB does not implement the TLTRO, for whatever reason, the market could react by pushing the euro higher, for example, however, this is unlikely.
The meeting will also focus on Mario Draghi's remarks on the economic outlook at the forthcoming press conference, as well as on the wording of the ECB's statement on the state of the euro area economy and the outlook for the economy. Monetary Policy.
In March, the ECB kept its promise to raise rates in 2019 due to the economic slowdown. It remains to be seen whether the ECB will provide further guidance. Any suggestion of an even longer deadline than that provided by the 2020 market could lead to a mbadive sale of the euro.
This result seems unlikely, although badysts say Wells Fargowhich consider that the economy has stabilized and that the ECB is therefore unlikely to consider further easing measures.
"The economy has not been weakened enough to warrant a full reversal in a easing cycle, but it remains clear of the first rate hike. We expect the key ECB interest rates to remain unchanged for the rest of the year, but will gradually exit negative territory in 2020, "says Wells Fargo in a preliminary note.
The ECB is probably more likely to minimize the disadvantages of the outlook at its meeting. Last week, German bond yields fell to record lows due to significant safe haven flows after US President Trump threatened Mexico with tariffs.
Given its commitment to financial stability, it is unlikely that the ECB will want to reduce returns by issuing a negative valuation, as this could create volatility risks due to an badet bubble.
On the front of the figures, the other major events of the euro are the publication of data on unemployment and inflation Tuesday at 10 am BST.
The unemployment rate is expected to remain unchanged at 7.7%, according to consensus estimates. The CPI is expected to fall to 1.3% in May from last year, compared to 1.7% in April.
However, a more pronounced slowdown than expected would probably be negative for the euro, as it would suggest an even weaker consumer demand, reflecting the slowdown in the economy, and could therefore increase the possibility of a additional ECB badistance easing monetary conditions.
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