The British GBP/EUR Exchange Rate Forecast: Uptrend to Extend, Autumn Statement is Week's Key Focus

Pound Sterling remains in an uptrend against the Euro but the Autumn Statement due mid-week could shake the GBP/EUR.

• Pound to Euro exchange rate today (21-11-16): 1 GBP = 1.1632 EUR
• Euro to Pound Sterling rate today: 1 EUR = 0.8597

A soft start to the new week for the UK currency but technically the GBP/EUR pair remains in technical uptrend in the short-term after breaking above the final lower high of the previous downtrend, the level of which is denoted by a red horizontal line on the chart below.

The break reinforces the picture of rising peaks and troughs, suggesting a stronger uptrend is evolving.

The MACD has broken clearly above the zero-line adding further weight of evidence to the argument that a new bull trend is in force.  

We expect a continuation higher, with a break above the 1.1734 high first targeting 1.1800, then 1.1900 and then 1.2000.

There is now quite a lot of support underpinning price action, including the 1.1645 key lower high and the monthly pivot (PP) at 1.1585.

These are likely to contain downside for the pair.

Much of the upside has resulted from a weakening of the Euro side of the pair due to the politically unstable outlook for the Eurozone.

Impending elections in several key states including Italy, Austria, France and the Netherlands could see the emergence of an anti-EU majority as happened in the UK with Brexit.

If more countries decide to divorce from the union it could reduce the importance of the Euro and weaken it.

The pound meanwhile is in a winning position if there is more political uncertainty in the Eurozone as it will weaken the EU authorities bargaining position.

If more countries opt out of the EU, a new looser trade confederation could take its place with potentially tighter controls over immigration but continuing free trade rights.

Thus from a fundamental perspective, the pair remains biased to further upside.

Latest Pound/Euro Exchange Rates

	Live: 1.1455▲ + 0.1% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1066 - 1.1111
**Independent Specialist	1.1295 - 1.134 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Autumn Statement Dominates Fundamental Outlook for Pound Sterling this Week

The main event will be the Chancellor’s Autumn Statement on Wednesday, November 23.

Markets will be focused on the amount of fiscal stimulus the government is willing to spend, which if substantially higher is likely to support the Pound as it will take the pressure off the Bank of England to print money and use that as stimulus instead.

Talk of stimulus may have been hyped as an admission of ‘outright loosening’ now seems unlikely, according to Capital Economics’ Paul Hollingsworth:

“All eyes are now on the Chancellor, who delivers his first fiscal set piece with the Autumn Statement on Wednesday.

“He will be constrained somewhat by recent poor borrowing numbers (see Chart below) and a disappointing set of economic forecasts.

“Accordingly, we expect fiscal policy to be less tight than the current plans, rather than providing an outright loosening.”

Hammond has said the Government remains constrained by the country's huge debt pile and with economic growth remaining robust he will most likely opt for a conservative budget.

Expectations for a Trump-style fiscal boost are therefore likely to be misplaced.

In all, this should be a business-as-usual budget from a Pound Sterling perspective.

UK Data to Watch

The government’s latest borrowing figures out in Tuesday, November 22 – the day before the budget - could provide a hint as to how generous Chancellor Hammond is willing to be.

Economists estimate a rise of 5.6bn borrowing in Net Borrowing by the government in October, from a previous 10.1bn.

A rise much above that will probably weigh on sterling as it will reduce the Chancellor’s stomach to open up the coffers of the Treasury.

Other data includes Q3 GDP on Friday. November 25 at 9.30 (GMT).

Preliminary estimates had it at a healthy 0.5% QoQ and unless the second estimate seriously disappoints we are unlikely to see much movement from this release.

Tuesday, November 22 sees the release of survey data from the Consortium of British Industry November.

Key Data fort the Euro This Week

The main release in the coming week is Purchasing Manager data for Eurozone Manufacturing and Services, which is released on Thursday. November 24 at 9.00 (GMT).

The results are expected to show a pullback in activity in November 53.2 from 53.5 in Manufacturing and a slight rise to 53.0 in Services from 52.8 previously.

The Composite PMI is expected to remain unchanged at 53.3.

Thursday, November 24, also sees important sentiment data released in the form of the Ifo Business monitor at 9.00 – a gauge of general Business confidence which is often accorded predictive powers.

The Ifo’s Headline figure is forecast to rise to 106.3 in November from 106.1 in October.

“We expect both the euro-zone Composite PMI (Wednesday) and the German Ifo Business Climate Indicator (Thursday) to have improved in November,” commented Capital Economics’ Stephen Brown.

Gfk German Consumer Confidence, out at 12.00, completes the confidence data roster on Thursday.