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Image © Melinda Nagy, Adobe Stock
– Short-term uptrend in GBP / EUR will continue
– Possibility of withdrawal initially
– Pound Expects Government Plan B for Brexit
– ECB meeting dominates outlook for the euro
The pound / euro exchange rate is trading at 1.13328 at the start of the new week, following a 1.3% rise the previous week, mainly due to the easing of Brexit fears and the fact that investors were counting on the second referendum probability.
Except for fundamentals, our outlook for the week ahead is slightly bullish on the technical front, but additional gains would be tied to a break above last week's high of 1.1409.
The weekly chart shows that the pair of plums is trading at the center of a long-term range encompbading approximately 1.10 and 1.16, which is a neutral sign.
The "look and feel" of the previous week's price action, with rejection of the highs, suggests that the bulls have lost heart and is not a positive indicator, however, at the same time, the exchange rate managed to penetrate and close over 50 weeks. moving average, which is a bullish sign.
A break above the highs of 1.1409 would confirm the switch to a target at 1600 at the ceiling of the range.
The daily chart shows that the pair has exceeded the 50 and 200 day MAs, which is a bullish sign. However, he also formed a downside inversion model at the top named 2-bar inversion.
This happens when the market forms a long candle which immediately follows a candle to the same length, from the same top.
Such a trend occurred Thursday and Friday when the market rose sharply and then fell sharply after negative data on retail sales in the UK. An example of such a trend and the decline that usually follows is shown in the graph above.
The 2-bar reversal is a short-term bearish signal and it is possible that the pair may fall back into 200 and 50-day MAs in the 1.195 to 1.1277 range before the market continues to fall. rise.
Again, this bearish signal is another reason why the market must exceed the lows of 1.1409 to confirm its continuation.
The 4-hour chart shows that the short-term trend is bullish and suggests more upside potential. It shows how the exchange rate went up and down after the January 3 lows. The pair formed two higher highs (HH) and higher lows (HL) on the chart at 4 o'clock, which is indicative of the establishment of a new uptrend in the short term.
Although the decline since the peaks of January 17 has been marked by a sharp slowdown, the overall trend remains slightly bullish.
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The book: what to watch
The next factor in the Brexit saga will be the main factor that will affect the pound in the coming week. On Monday, a motion will be submitted to Parliament which, if voted, "expresses its will against" no agreement ".
"MEPs will unveil tomorrow their plan to deflect the Commons suspension agenda from Article 50, the mechanism by which the UK leaves the EU," the Sunday Times reports. .
All motions to prevent a Brexit "without agreement" are presumed to have a good chance of being voted because it is the only option that seems to be supported by a majority of deputies. If it is adopted, it will further reduce the likelihood of a messy hard Brexit and will support the pound.
In the meantime, the Sunday Times announces that Prime Minister Theresa May will likely unveil her "Plan B" option to save her contract with Brexit.
"It wants to offer Ireland a bilateral treaty that would eliminate the" safety net "of the EU withdrawal treaty and would prevent a hard border by other means," said Tim Shipman, political editor at the Sunday Times.
On the front of "figures", the main publication is the labor market Tuesday at 9:30 GMT. According to forecasts, 20,000 jobs are expected to be added in December, the unemployment rate is expected to remain at 4.1% in November, and average earnings (including bonuses) rise 3.3% over the previous year, also in November.
A higher than expected result would support Sterling. British data has been mixed recently. Last Friday, the British pound collapsed after retail sales in the United Kingdom posted an unexpected drop of -0.9% in December, which was below the expected -0.8%. Moreover, the lack of data could create an image if the decline weighed more heavily on the pound sterling.
The euro: what to watch
The main event of the euro is the European Central Bank (ECB) gathered Thursday at 12:30 GMT.
Although no policy changes are expected at the meeting, the markets will follow what is written in the statement and what President Mario Draghi said at his press conference.
Investors will be particularly attentive to the ECB's appreciation of the euro area economy following the sharp contraction in growth in the second half of 2018. If the ECB's badessment is also more negative than expected , the euro will weaken probably has no change in the message, it will trade at the same level.
"Draghi will likely be questioned by reporters about what the central bank intends to do if the economic backdrop in the eurozone continues to worsen. Any indication that the Governing Council has considered delaying a rate hike or even a relaxation of the policy could tip the euro against the greenback, "says Raffi Boyadjian, Broker Market Analyst. XM.com.
An overabundance of data on the prevailing climate will dominate the economic calendar of the euro over the next week.
The main publication on the confidence data front is the publication of the Euro Area Industry and Services SMIs for January at 9:00 GMT on Thursday. The SMIs have been falling since the beginning of 2018 and badysts will want to know if the trend will continue until 2019. A turning point for the measurement system is 50. A result below this figure indicates a decline; a result above is indicative of growth.
The composite PMI, which is a broad gauge – a combination of the results of the two sector PMIs – is expected to recover slightly in January, from 51.2 in December to 51.4. Such a recovery could help support the euro, as it could give hope that the slow fall in 2018 is coming to an end.
The German ZEW survey of 350 finance professionals is published at 10 am on Tuesday. The previous month he had regained a touch after exceeding the expectations of a -23 result coming in at -21, which, although still very pessimistic, was nevertheless better. The markets will see if the same can be said of January and if it can, the euro could benefit from a little respite.
The latest press release is the IFO survey of German business leaders, published at 9 am on Friday.
All of these surveys are considered fairly reliable predictors of future activity and are used by badysts to help provide insight into the harsher data that are normally released later and may further affect the markets.
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