GBP/EUR Weekly Outlook 3rd-7th of June + Brexit Update
Good afternoon everyone.
The GBP/EUR exchange rate is trading back above €1.13 after hitting lows in the €1.1280's last week which saw it have its worse preforming month since 2017. The GBP/EUR pair continued its recovery in the morning session despite worse than expected UK Manufacturing PMI figures released at 9:30am. UK Services PMI is due for release on Wednesday with an expectation of an increase from 50.4 in the previous month to 50.6 for the month of May. These figures have a greater potential to impact Sterling as services account for 80% of the UK’s economic activity.
Sterling will continue to pay close attention to politics and Brexit as a state visit from Donald Trump is likely to draw attention from the markets. The US President has been increasing his involvement in British politics in the last few weeks as he has shown continued support for hard-line Brexiteers Nigel Farage and Boris Johnson. The future of the currency will be dependent on the stance on Brexit of future leaders of the Conservative Party. If Mr. Johnson manages to get through the first round of voting in Parliament and is put forward as one of the two remaining candidates, he is likely to win, which would continue to put downward pressure on the Pound as he pledged to take Britain out of the EU on October 31 with or without a deal.
On the Euro side of things there’s potential Italian political risk for the Euro later today from Italian prime minister, Giuseppe Conte. He’s due to hold a press conference at 15:15 BST. Failing to heed the warning, Conte is likely to send a warning message to the two parties in deadlock, that he will quit which would throw further uncertainty into the air in Italian politics as Conte is seen more as a mediator and "middle man" for Salvini and Di Maio's parties.
The Week Ahead
Besides PMI data due tomorrow, Wednesday & Thursday, there is potential for volatility from the testimony of Mark Carney and other Bank of England officials as they are questioned by the Treasury select committee on Monday, however, he and his colleagues are likely to defer an opinion on when interest rates could rise again until there is greater clarity on Brexit. The main event for the Euro is the meeting of the European Central Bank (ECB) on Thursday at 12.45 BST. The ECB’s assessment of the economy, its intentions for monetary policy and the level at which it intends to set interest rates is a big driver for the Euro. Markets are continually looking for hints as to when that might happen. For this month the ECB is widely anticipated to make changes to the parameters of its cheap loan programme to Eurozone banks, or TLTRO - ‘targeted long-term refinancing operation’ programme. The market is unlikely to react much to the announcement as it has been widely telegraphed already, and priced in. It is only in the event that the ECB does not implement TLTROs, for some reason, that the market might react, by pushing the Euro higher, for example, however, this is unlikely. The other focus of the meeting will be what Mario Draghi says about the economic outlook in the press conference that follows, as well as the wording of the ECB’s official statement on the state of the Eurozone economy and outlook for monetary policy.
GBP & EUR Weekly Movements
Market sentiment for the GBP/EUR rate is on a sideway trend at time of writing. Sterling has begun the week slightly higher even after weak manufacturing data this morning. Keys levels to keep an eye out for will be the €1.1270’s If we see the rate move LOWER than this for a sustained amount of time, then the likelihood of the rate moving into the low €1.12’s will be high. As with such volatile times the rate could easily move HIGHER and if we see the rate move above the €1.1360/80’s for sustained amount of time, then we could see a move HIGHER towards the €1.14’s.
Low Risk takers with pending exchanges that need to be made this week, should consider making their exchange while the interbank rate is above or close to the €1.13’s. Still no clear sight on what path Brexit will take next which means for now low risk takers need to offset the risk of the rate moving even lower and should consider making half or all of what needs to be exchanged in the days/coming weeks.
Medium Risk takers with pending exchanges that need to be made this week, should consider making their exchange while the interbank rate is above or close to the €1.13’s - €1.1350’s. As a medium risk taker there is some good reason to see what the ECB does on Thursday. Most focus will be on what the head of the ECB (Mario Draghi) says about the state of the EU economy.
High Risk takers with pending exchanges that need to be made this week, same as above (Medium Risk taker). Plenty of important data due this week that could cause some positive surprises. There is still an overall sentiment amongst analysts that things will get worse for the GBP/EUR exchange rate before getting better. Any HIGH risk taker should keep in mind that we could be in for a couple of months’ worth of pressure on the GBP/EUR rate due to the Brexit uncertainty that could last throughout the whole summer and beyond.
Tuesday 4th of June
09:30 GBP Markit/CIPS UK Construction PMI (MAY)
10:00 EUR Euro-Zone Unemployment Rate (APR)
10:00 EUR Euro-Zone Consumer Price Index Estimate (MAY)
Wednesday, 5th of June
09:30 GBP Markit/CIPS UK Services PMI (MAY)
09:30 GBP Markit/CIPS UK Composite PMI (MAY)
10:00 EUR Euro-Zone Retail Sales (YoY) (APR)
Thursday, 6th of June
07:00 EUR German Factory Orders n.s.a. (YoY) (APR)
08:30 EUR Markit Germany Construction PMI (MAY)
10:00 EUR Euro-Zone Gross Domestic Product (1Q F)
10:00 GBP BOE Governor Mark Carney Speaks in Tokyo
12:45 EUR European Central Bank Rate Decision (JUN 6)
12:45 EUR ECB Marginal Lending Facility (JUN 6) High
12:45 EUR ECB Deposit Facility Rate (JUN 6) High
13:30 EUR ECB's Draghi Speaks After Policy Decision in Vilnius
Friday, June 7th of June
07:00 EUR German Industrial Production (YoY) (APR)
07:00 EUR German Trade Balance (APR)
09:30 GBP BoE/TNS Inflation Next 12 Mths (MAY)
GBP/EUR Daily Performance
•High of the day so far is €1.1333
•Low of the day so far is €1.1285
•Resistance at €1.1350/70’s
•Support at €1.1270’s
•Daily Trading Range €1.12’s - €1.14’s
Current rate at time of writing 12:44 is €1.1301