PoundSterlingLIVE -
- Pound-Euro underpinned by positive momentum
- Retest of 1.1740 possible
- But for now, strength will likely fade here
- Eurozone CPI inflation is week's key event
Pound Sterling retains a constructive setup against the Euro, and further advances can be expected this week, but a strong Eurozone CPI print would likely boost the Euro.
The past week was instructive for the Pound to Euro exchange rate from a technical perspective, as we saw a support base forming at 1.1660, which should underpin it over the coming days and weeks and allow for a retest of the year's highs.
Last week's sell-off was arrested in this region, and the recovery to the 1.17 level on Friday means we are now back in the middle of a well-formed range with greater confidence that the post-CPI inflation sell-off of mid-month has run its course.
We look for trade to pivot around 1.17 for the foreseeable future, and we suggest those with payment requirements realise that any significant diversions from here offer tactical opportunity.
In particular, should the recent rally extend to the hard barrier at 1.1740, we would expect strength to be sold into and the pair to pull back, as has so often been the case in recent months.
Of course, a breakthrough in this resistance area remains possible, but it would require significant buying momentum to smash through the significant orders layered in this vicinity and we are not sure whether anything in the near-term calendar can provide this impetus.
Note that momentum signals broadly support Pound Sterling, with Pound-Euro trading above its 50-, 100- and 200-day moving averages, which advocates for a retest of 1.1740 near term.
There is nothing on the UK calendar that will bother the Pound and UK interest rate expectations in the coming days, putting the onus on the Eurozone's monthly CPI inflation data to provide excitement.
Thursday sees Germany's inflation figures, released state-by-state, with the biggest tranche falling at 09:00 GMT, leading to the all-German figure at 13:00. (The expectation is 2.6% y/y.)
On Friday, the market looks for a headline Eurozone inflation rate of 2.9% year-on-year for February to be reported, down from January's 3.3%. A downside miss would firm European Central Bank rate cut bets, leading to a weaker Euro.
Upside surprises would push back against rate cuts and underscore the Euro's recent resilience against the Pound and Dollar.
"We expect these to show a further step down in inflationary pressures towards the 2% target. Before we get there, we will hear from President Lagarde on Monday as she comments on the ECB’s Annual Report," says Ellie Henderson at Investec.
"We hope for any indication of how ECB thinking has evolved since the latest meeting," she adds.
An original version of this article can be viewed at Pound Sterling Live