For the GBP to EUR conversion is breaking lower in line with our previous forecasts.
The exchange rate has fallen from just below the 1.20 resistance point back into the early 1.18's in line with our recent view that this ceiling was too entrenched to break above in 2016.
The current selling pressure is certainly technical in nature we believe as there has been little by way of newsflow to explain the mid- to late-December weakness.
Studies of the GBPEUR's charts show the pair remains in a rising channel but a recent lack of volatility, as well as robust resistance lying just above the highs, means we are marginally biased towards expecting a breakout from the channel and more downside.
The pair has most recently broken below the lower boundary of the channel.
It has moved below 1.1800 confirming a breakdown, and probably leading to an extension down to a target at 1.1700.
The MACD momentum indicator is falling in line with the exchange rate and has broken below the signal line, indicating a propensity to continued weakness.
The biggest data releases at the end of the week are UK GDP on Friday at 9.30 (GMT) and the Eurozone Economic Bulletin on Thursday at 9.00.
However, Q3 GDP is a revision, not the flash estimate so is unlikely to have a great impact unless it deviates from the estimate, which is less likely.
UK GDP Data Boosts Sterling
The Pound rebounded on the morning of Friday, December 23, after UK Q3 GDP was revised up to 0.6% quarter-on-quarter from 0.5% previously.
The year-on-year result was revised down to 2.2% from 2.3% previously, but this did not prevent Sterling from appreciating due to the higher quarterly result.
The data reinforces the UK economy's remarkable resilience in the face of the uncertainties posed by Brexit, and is likely to boost the outlook for Sterling.
Why the Pound Should see Losses being Limited
While the technicals confirm a lack of momentum and the potential for a retracement lower, from a fundamental perspective we note that the prospect of a big move lower in the Pound remains unlikely at this juncture.
For both the Pound and the Euro political uncertainty has been, and still is, a major theme.
Yet, as noted by Nordea Markets, the Brexit issue may not weigh on Sterling as heavily in an environment in which the focus shifts to the Eurozone.
Markets will be wary of the Euro heading into a year that sees French Presidential elections, Dutch general elections, and a German Parliamentary election.
The issue of a shift towards the political right in all the above was heightened following the recent terror attack in Germany.
The threat of terrorism could increase support for right-wing parties who are typically aligned against the European Union.
Any suggestions that France or the Netherlands could shift towards an EU exit will provide notable downside pressure on the Euro in 2017.
Indeed, analysts at Societe Generale believe the Euro should remain under pressure against Sterling until at the French elections have passed and the threat of a Marine Le Pen win has been seen off.
In addition, the UK's softening stance on Brexit could continue to support the Pound going forward after she reiterated the idea made by Brexit secretary David Davis that the UK could pay to retain links with the common market, the trading club part of the EU, even if the UK leaves the EU.
For businesses, such a move would provide the certainty required to make much-needed investment decisions.
We would expect Sterling to tread higher should this outcome become more likely.