GBP/EUR Weekly Outlook 20th - 24th January.
Good morning everyone.
Last week turned out to be an interesting one with the markets raising its bets that the BoE will cut interest rates at the end of this month. We saw the GBP/EUR rate trade between €1.1620’s too (surprisingly) €1.1770’s with the latter only moving to that level just before the release of UK Retail sales data. (This unexpected spike was speculative FX traders making bets just before the data was released and doesn’t always happen). The data came out much weaker than expected however because of the unexpected spike higher, the rate dropped back to the low €1.17’s and at time of writing is still hovering around that level.
Currently the markets believe there’s a 70%+ chance of this happening. Same as last week, this week’s economic data will be closely watched for more signs that the UK economy is slowing which could push the other BoE members into cutting interest rates sooner rather than later. 2 out of the 9 members have voted for a cut in the last two meetings. Since then other BoE members have voiced their concerns and look likely to join the two looking to cut interest rate if this week’s data fails to show improvements. (Historically when a central bank looks to cut its key interest rate, its currency would devalue, this is why the markets are paying so much attention to what the BoE and ECB are saying).
The Week Ahead
Tuesday will see the release of unemployment and wage growth figures for December but more importantly on Friday we have the first glimpse of how the UK economy is preforming this month with PMI data from the Manufacturing and the more important Services sector.
On the Euro side of things, markets will be focused on Thursday’s ECB interest rate decision and although all of the bank’s interest rates and various policy measures are expected to go unchanged, markets will still scrutinise details of the statement and press conference closely for clues on the outlook. EU/US trade tensions appeared to have slightly weakened the Euro last week something that could escalate in the form of Tariffs that President trump loves to impose when he’s not getting his way with trade deals. This could be something in the future that could really weigh on the Euro and benefit the GBP/EUR exchange rate but for now this week’s focus will be on the ECB and their own PMI data due out later in the week.
GBP/EUR & EUR/GBP Movement
Market sentiment for the GBP/EUR rate is on a sideway trend at time of writing. Analysts have suggested the next key levels will be the €1.1650’s, if we see the rate move below this level it will most likely continue down to the low €1.16’s and open up the possibility of moving into the €1.15’s/€1.14’s. On the other end if we see the GBP/EUR rate move above the €1.1730’s it should continue a move towards the high €1.1770’s but I’m expecting big resistance for the rate to move higher than this level. As seen last week, the GBP/EUR exchange rate failed to move higher than €1.1770’s.
·Low Risk takers with pending exchanges that need to be made this MONTH, should consider making their exchange while the interbank rate is close to or above the €1.17’s.
·Medium Risk takers with pending exchanges that need to be made this MONTH, same as above.
·HIGH Risk takers with pending exchanges that need to be made this WEEK, could hold off to see how the Friday’s data comes out. It will be key to the GBP/EUR’s next big movement.
GBP/EUR Daily Performance
High of the day so far is €1.1726
Low of the day so far is €1.1690
Resistance at €1.1770’s
Support at €1.1650’s
Daily Trading Range €1.1610’s - €1.1770’s