The Pound-to-Euro Exchange Rate 5-Day Forecast: Declines Hinted at by the Charts, Sterling Faces Crunch Brexit Votes – Pound Sterling Live

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The Pound-to-Euro Exchange Rate 5-Day Forecast: Declines Hinted at by the Charts, Sterling Faces Crunch Brexit Votes – Pound Sterling Live

Politics to buck the British Pound over coming days

No further concessions on Brexit have been forthcoming from the EU’s Chief Negotiator Michel Barnier ensuring the EU-UK Brexit deal will fail this week. Image © European Union, 2018 / Source: EC – Audiovisual Service / Photo: Etienne Ansotte.

– Short-term signals on GBP/EUR charts negative

-May’s Brexit deal faces defeat, uncertainty to rise

– Euro eyes German Industrial Production data

Our technical studies suggest the Pound could come under further pressure against the Euro in the short-term; while the tenor on Sterling has deteriorated from a technical perspective over recent days readers should expect significant volatility to buck the currency over coming days as the House of Commons votes on the EU-UK Brexit deal.

A positive technical setup for Sterling, in place for weeks now, was undermined after the currency came under heavy selling pressure on Friday, with traders cutting back on exposure to the currency ahead of what promises to be a critical week in British politics.

The Pound-to-Euro exchange rate went nearly 1% lower to trade below the psychologically significant 1.16 level to close at 1.1581. There are warning signs on the charts that further declines are possible.

GBP to EUR 4 hour

Of particular note is a bearish double top pattern haunting the highs of the 4-hour chart. At the moment it looks complete and ready to break lower to a downside target of 1.1410 but the top of the range highs at 1.1590 is still blocking bears and is likely to present a hard-floor through which they will have to break before the rate can decline.

A move below Friday’s lows at 1.1550 would probably open up a wave of selling down to 1.1500, and the supporting trendline at that level. A break below 1.1485 would then also probably provide sufficient confirmation for a continuation down to a target at 1.1410.

GBP to EUR weekly

Despite the bearish warning signs, the pair did make a breakout above the range highs the week before last and this will keep bullish hopes alive over a medium-term, multi-week, timeframe.

If the exchange rate can break above the 1.1723 highs established at the end of February, it could green-light an extension higher to a fresh target at 1.1820. This is a medium-term objective and not something we would expect to occur this week unless Prime Minister Theresa May’s Brexit deal is approved by the House of Commons.

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The Pound this Week: It’s Crunch-time

The main event for Sterling in the coming week is Parliament’s meaningful vote on Brexit on Tuesday.

With no further concessions on the Irish backstop likely from the EU, and talks being described as being close to breaking down, Theresa May is now unlikely to present the changes required to win and the most probable scenario is that Parliament then moves to vote on whether or not to exit the union without a deal, on Wednesday.

Assuming it does not vote for this outcome – parliamentary arithmetic suggests this is highly unlikely – the next most probable outcome is that Parliament votes on Thursday to decide to request a delay of Article 50 and the whole Brexit process from the EU.

That there will be a delay is currently the consensus expectation. How this will affect Sterling is open to interpretation.

“If lawmakers choose to delay Brexit, a modest rise is attainable for the Pound, while a surprise backing of May’s deal could send the Pound surging above $1.35. But In the unlikely event that a no-deal wins support, sterling could crash below $1.27,” says Raffi Boyadijian, an economist at broker XM.com.

The Brexit deal faces a heavy defeat in parliament on Tuesday because she has so far secured no major changes from the European Union, the leaders of two major eurosceptic factions in parliament said on Sunday.

Nigel Dodds, the deputy leader of the Democratic Unionist Party (DUP) which props up May’s minority government, and Steve Baker, a leading figure in the large eurosceptic faction of her Conservative party, warned “the political situation is grim”.

“An unchanged withdrawal agreement will be defeated firmly by a sizeable proportion of Conservatives and the DUP if it is again presented to the Commons,” they wrote in the Sunday Telegraph.

In further, developments a Sunday Times report says May’s team have been warned by senior Brexiteers that she would get her deal passed only if she offered to resign by June so a new prime minister could lead the second phase of negotiations.

“We think Sterling faces a more difficult road,” says James Rossiter, a foreign exchange strategist with TD Securities. “A lot of good news is already in the price and that investors may have gotten a little ahead of themselves in hoping for further positive developments. With the UK’s data and event calendar relatively light until the 12th, we think Sterling may start to feel the effects of gravity once again.”

The other main release is UK GDP which is forecast to show a 0.2% rise in January after a -0.4% fall in December when it is released at 9.30 GMT on Tuesday.

GDP is forecast to have risen 1.2% from a year ago, up from 1.0% previously. A higher-than-expected rise would support the Pound and vice versa for a lower-than-forecast result.

The trade balance in January is released at the same time as GDP and is forecast to show a -12.2bn deficit compared to -12.1bn previously.

Also released at the same time is manufacturing production and this is forecast to show a 0.0% rise in January month-on-month compared to the -0.7% previously.

Industrial production in January is released at the same time and estimated to have fallen by an even steeper -1.4% from -0.9% previously.

The Euro: What to Watch

Despite the European Central Bank’s negative assessment of the economic outlook last week, talk of green shoots appears to be raising hopes of a recovery in the Euro-area, and for evidence of this, analysts will be watching industrial production figures more closely than otherwise.

Industrial production in January, therefore, is a key release, which is forecast to show a 1.0% rise from -0.9% previously, when it is published at 10.00 GMT on Tuesday.

A beat on expectations could prove positive for the single-currency.

Traders could get an early idea of the Eurozone-wide result from how well Germany has done, as German industrial production data is out on Monday at 7.00, and is forecast to show a 0.5% rise from -0.4% in the prior month.

“Despite weak headline production data, manufacturing sales data have been strong for 2 months now and pressures are building in the pipeline. We expect bottlenecks in Germany to have largely worked off in January, allowing IP to rebound very strongly, and reflecting strength seen elsewhere in last Friday’s data,” say TD Securities in a week-ahead preview.

If this prediction is correct the Euro’s week could start on a strong note.

Apart from that, there is also a meeting of the Eurogroup of finance ministers which may result in some headlines, and speeches from ECB governing council members such as ECB’s Lautenschlager on Tuesday, and Mersch, Angeloni, and Coeure on Wednesday.

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