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– GBP / EUR showing both positive and negative signs
– Possibility of an evolving lateral trend
– Sterling to be displaced by Brexit, BOE and PMI leaders
– The euro is inspiring GDP data
The pound sterling will start the new week at around € 1,110 after 12 weeks of successive losses: the overall trend is certainly negative.
Studies of the charts suggest that the pair could go up or down in the next few days, with possible resolution of the mixed outlook residing in the evolution of a sideways trend.
However, we are wary of weekend reports suggesting that the British government is redoubling efforts to prepare a "no deal", the Brexit could bring down the currency when the markets are open.
Looking first at the technical indicators, we see the 4-hour chart – used to determine the short-term outlook, which includes the week ahead or the next 5 days – shows how the pair rebounded sharply after reaching its most low level of July 17, 10 a few days ago.
After peaking at the July 25th high of 1.245, the pair then turned around and retreated to end the week at 1.1107.
The decline since the peaks of the 25 was strong and was accompanied by a sharp drop in momentum, which indicates that there is still a decline in the future. It is therefore possible that it continues until 1.1048 and even perhaps even down. longer term beach at 1.1000.
This would also be in line with the long-term downtrend.
However, the July 17 rebound also established three series of higher highs (HH) and highs down (HL), which is a sign that a new upward trend may have started and, given the old adage "the trend is your friend". will probably expand further.
To confirm the rise, a break above 1.245 high points would be needed. Such a break would probably lead to the continuation of the uptrend towards a goal at 1.1360.
Alternatively, a break below July 17's minimums at 1.1048 would indicate a likely continuation down to the 1.1000-1.0990 range.
The daily chart – used to badyze the medium-term outlook, which is defined as the week to a month ahead – shows the pair in a long-term downtrend.
The pair rebounded to July 17 lows and reached its peak on July 25 by connecting to the 50-day moving average (MA) – and after that, it fell into two rather bearish bars.
Just like the 4-hour chart, we see a possible continuation higher, lower, or sideways. A market in the interim would likely trade between a ceiling of 1.1360 at the 200-day moving average (MA) and a floor at 1.1000.
We do not expect a high probability of a break in this range in the medium term, as Brexit's main Sterling-related drivers will be largely absent during the summer holidays when Parliament is on vacation.
The euro may be a factor of volatility, but it also seems unlikely during the calm summer.
The weekly chart – used to badyze the long-term trend, defined as the action of the markets in the coming months – shows that the pair is trading over several years.
Given the political risks badociated with Brexit in the long term, it is possible that the pair is turning away from this range, especially on the downside given its proximity to the low range of 1.1000.
A break below 1.0950 would probably confirm a break and lead to a drop to 1.0750 initially at the September 2017 lows.
Otherwise, it is possible that the pair will rise within the range and retouch the 1.1600 in the coming months if the Brexit is likely to dissipate.
Another high probability alternative is that the situation remains uncertain, in which case the exchange rate may continue to move in the lower half of the range.
Another thing to note on the weekly chart is how the last two weeks have displayed opposing (circled) candlestick patterns: last week, for example, formed a bullish candlestick that is bullish and, although the price actually rose after the hammer, the following week he formed a bearish shooting star candlestick. For us, this symbolizes the mixed prospects in the short term.
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The Pound: Brexit Securities, Bank of England
The Brexit sentiment is by far the biggest driver of the pound at the moment, and the headlines of the weekend do not support the motto we believe.
According to media reports, Prime Minister Boris Johnson is fully committed to a Brexit "without any agreement" "by all means necessary".
the Sunday Times Johnson set up a "War Cabinet" tasked with setting up Brexit "by all means" by Oct. 31, when a senior minister had warned that there was "now a prospect." very real "lack of agreement.
While markets have raised expectations for a "no agreement" Brexit since May, it is likely that the "no deal" risk sentiment is still absorbed and that Sterling has the propensity to go down and trigger new lows at several months.
"Although we still expect a Brexit without agreement at a moderate rate of 20%, we are bearish on the Pound Sterling in the short term, in the hope that Mr. Johnson's rhetoric with regard to EU will remain bellicose and perhaps even harder until October 31, "says George Brown, badyst at Investec.
On the calendar, the main event of the book next week is the bank of England Exchange rate (BOE), because it sets the interest rates that are the engine level 1 of the book. However, in reality, this may not be the case. The Brexit uncertainty has paralyzed the BOE and until it is resolved, it is highly unlikely that it will take action and all their guidance will be conditioned to "a smooth Brexit".
The current position remains slightly hawkish because of optimistic salary growth, which distinguishes the BoE from most of its G10 peers, with the exception of the Bank of Canada. This should translate into a potential rise in the pound if the UK manages to manage its Brexit.
However, as anyone following the evolution of Boris Johnson's new administration, it's far from certain. Johnson has badembled what looks more and more like a "cabinet of war" made up of Brexiteer ministers who could be ready to pull the UK out of the EU with a Brexit "without agreement" on Oct. 31.
"The Bank of England (BOE) continued to show a bias towards a possible tightening at its June meeting. This tightening is contingent on a possible smooth exit from the European Union. However, this effort sometimes sometimes seemed more and more complicated, "he says. Wells Fargo in an overview of the meeting. "Inflation data has been stronger in the UK than in Europe and, according to the latest release," Unit labor cost growth has remained at consistent target levels. "" L & # 39; The UK economy has seemed a little more volatile lately, especially the manufacturing sector, which may be feeling more and more the pressure of struggles in the factories sector in continental Europe. "
The US bank then suggested that the growing pressure from a peer group from other central banks could be an additional incentive for the BOE to become itself dovish.
They foresee a possible increase in the BOE rate before 2020.
Given that the manufacturing sector could be the weakest link in the economy, the spotlight could be more closely shaped on British manufacturing PMI data for July, Thursday morning at 9:30 BST, which should show a drop to 47.7 per cent. compared to 48.0 previously.
A deeper-than-expected spread, as shown by last week's European numbers, could lead to a weakness in the pound sterling, which could be seen as a crack likely to lead to a larger downturn.
The euro: what to watch
GDP data for the second quarter, which is expected to have increased by 0.2% in the second quarter and 1.0% over last year, will be the main release of the euro during the second quarter. the week ahead. GDP higher than inflation, that is to say.
Such a result would be in line with current estimates of euro area growth "barely an impulse". However, a result below expectations would boost the expectations of the ECB on the basis of its bazooka in September. Such an approach would be detrimental to the euro.
Although manufacturing PMIs fell to the levels of the eurozone debt crisis, their services counterparts remained relatively resilient.
"The anticipated publication of real GDP growth in the euro area in the second quarter is expected next Wednesday, and the data should show that the European economy continues to waver. Real GDP in Europe has slightly accelerated in recent quarters, but the annual rate is still only 1.2% and we expect the quarterly growth rate to fall back to 0.2%. second trimester. If these predictions were correct, growth from one year to the next would remain stuck around 1%, "says Wells Fargo.
Other key data are unemployment, retail sales and the euro area CPI.
July's inflation should moderate from 1.3% in June to 1.1%, which should keep pressure on the euro.
Although inflation is traditionally seen as a nuisance for the economy, in the current context of weak growth, higher inflation is actually positive for a currency because it is a sign of stronger growth and is therefore more likely to attract foreign investment flows.
The unemployment rate is expected to remain unchanged at 7.5% in July when it will be released at 10 am on Wednesday.
Retail sales are expected to be up 0.3% in June from May, when they fell -0.3% when they were released at 10 am on Friday.
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