The Pound starts the week on the front foot against the Euro which suffers on news German coalition talks are at crisis point but our technical studies suggest GBP/EUR is likely to remain close to familiar levels over coming days.

The Pound-to-Euro exchange rate is trading in a range, oscillating between the range-floor at 1.11 and the ceiling at 1.1400 and our latest technical studies suggest this region is unlikely to be broken over coming days.

However, a move towards the upper end of the range has become a near-term prospect owing to recent political developments in Germany where newsreports confirm attempts by Chancellor Angela Merkel to form a government have failed.

The failure of talks between Merkel's conservative bloc, the Greens and the Free Democrats thrusts, "Germany into a political crisis and pushing Europe's largest economy closer to a possible new election," according to an analysis from Reuters.

News of the talks failing have seen GBP/EUR rise to 1.1253 at the time of writing, having started the week at 1.1206.

The move higher reinforces our belief that the support level at 1.11 is likely to hold and protect the exchange rate from significant weakness in the near-term.

We noted last week that significant buying interest arises on the exchange rate's approach to 1.11 as the pair rarely goes below here, this is the obvious downside level to watch over coming days as a break below this support region would open the door to more substantial weakness.

Our studies observe the exchange rate to have previously been in a short-term downtrend within the 1.11-1.14 range and note that if the pair breaks below the floor, confirmed by a break below the October 12, 1.1068 lows, the rate would be expected to reach a target at 1.0900.

This target is arrived at by taking into account the height of the range extrapolated lower:

According to technical analysis theory, when prices break out of a range they tend to extend at least as far as the height of the consolidation multiplied by 0.618, extrapolated higher or lower from the break.

0.618 is the golden ratio, a significant mathematical ratio which tends to describe natural phenomena and operates in financial markets; the height of the range is 3.00 cents, so the golden ratio is 1.85.

Although the trend prior to the range was up and therefore there is also an argument for the pair eventually breaking out higher the price action during November, shown on the four-hour chart below is bearish, and in the absence of a reversal expected to remain that way:

Technical analyst Karen Jones at Commerzbank reckons for now the Euro should stay on the back-foot against Sterling.

Jones observes the Pound fell but was supported at the 12th October 2017 low at 1.1070 and "currently the chart is indicating that we will only see minor" declines to 1.1180 ahead of a rise towards the top of the range again.

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Data and Events for the Pound

The most significant event of the week ahead is the Autumn Budget statement on Wednesday, November 22 which will prove important in terms of the credibility of the UK Government, and the economy's potential growth trajectory.

From a currency perspective, the stability of Theresa May's Government is key; markets like stability and recent months have shown the Government to be anything but.

The budgets is often a 'danger time' for Governments as popular support has often proven to be attuned to the success of a budget - recall George Osborne's 'omni-shambles budget' of 2012 where support for the Cameron Government slipped notably on perceived policy blunders presented in that budget.

"It is critical not only for the Government’s self imposed fiscal goals (2% deficit by 2021, balanced by mid-2020s) but the survival of May’s Govt. due to mounting political pressures domestically and around Brexit," says Tim Riddell at Westpac.

"A successful budget could relieve some pressures with a sound fiscal hand, support struggling parts of the population and strained public departments (NHS, education, security, et al,) and even allow for a firmer approach towards Brexit," says the analyst.

Also of importance to the Pound is whether the budget is growth-friendly or not - if it is, it could help strengthen the Pound.

There is a possibility the budget could include more generous public spending, especially on housing, and if so, this has the potential to boost the Pound.

Increased public spending tends to increase economic activity, which can generate growth, inflation, and then higher interest rates.

Higher interest rates tend to boost the Pound by attracting more capital inflows from foreign investors seeking somewhere to park their money where it will earn higher returns.

"The chancellor has come under increasing pressure to deliver a popular ‘big and bold’ budget that includes increased spending as a means of reviving spirits in the struggling and divided government," says a briefing from TD Securities.

The politics of Brexit could also continue to impact on Sterling as EU leaders are scheduled to meet to discuss whether progress in divorce proceedings has been sufficient to allow discussions to move on to the all-important future trade relationship.

"In the near term UK politics will likely be the main driver of GBP. In fact, GBP’s reaction to UK politics and our Brexit stress tracker is rising again," says Yujiro Goto of the Global FX Strategy desk at Nomura.

Although the size of the divorce bill remains a key sticking point there are signs the two sides are moving closer to a middle ground following reports from EU council head Donald Tusk that he found recent discussion with Theresa May surprisingly positive.

Any announcement of an agreement or being close to an agreement on the divorce bill would be extremely positive for the Pound.

The main hard data release is public spending figures for October at 9.30 GMT on Tuesday, November 21.

Public Sector Net Borrowing which is the difference between what the government earns in revenue and what it spends is expected to rise to 6.6bn, however, recent results have generally undershot expectations and a lower-than-expected amount might support

Sterling marginally by providing the Chancellor with more room to manoeuvre in his budget on Thursday.

Data and Events for the Euro

German Chancellor Angela Merkel’s attempts to form the “Jamaica” coalition in Germany failed as the pro-market Free Democrat Party (FDP) walked out of coalition talks after it failed to find common ground with the environmentalist Green Party.

Former coalition partners the Social Democrat party have of course ruled out forming a grand coalition with Merkel's ruling CDU/CSU, suggesting there are few options left for Merkel.

"The Euro is starting the week on a fragile note," says Philip Wee, FX Strategist with DBS Group Research. "With the prospect of a strong German government diminished, it has eroded the lift that the Euro found from last week’s better-than-expected German GDP data."

Currencies dislike uncertainty, and it is therefore understandable that the Euro would start the new week on the back-foot on the latest news out of Germany.

However, whichever shade the eventual German Government acquires it is likely to be resolutely pro-European which means substantial damage to the Euro is likely to remain limited.

Yet, the element of political risk in Euro exchange rates could grow further over coming days and weeks should the issue of German leadership deteriorate.

Also keep an eye be a speech by European Central Bank President Mario Draghi on Monday at 9.00 GMT, although little new information is expected regarding monetary policy. However, be aware that Draghi might spring a surprise.

The same goes for the release of the ECB minutes on Thursday, November 23 at 12.30.

"There probably isn’t much new information to come in these minutes," say TD Securities."The only information that we’re waiting for in Dec is some of the QE details, like the fraction of purchases going to govt bonds vs corporates, so look for a muted market reaction," added the Canadian investment bank.

Purchasing Manager Surveys are the other major release for the Euro in the coming week.

Both Manufacturing and Services are out at 9.00 on Thursday.

"In Europe, the surprising strength of the Eurozone PMI data has been gradually confirmed by official data, and flash November PMI numbers will provide a reliable guide to whether the recent growth surge has persisted into the fourth quarter," says IHS Markit, the official compilers of the data.

Get up to 5% more foreign exchange by using a specialist provider by getting closer to the real market rate and avoid the gaping spreads charged by your bank for international payments. Learn more here.