Above: U.K. Prime Minister Theresa May arrives at the E.U. meeting convened to discuss Brexit. Image © European Union.

- British Pound left rudderless following mid-week Brexit summit

- But Lloyds says technical outlook for Sterling bullish

- May sounds out idea of extending Brexit transition period

- Retail sales out Thursday come in below expectation

Pound Sterling is quoted in familiar territory against the Euro on Thursday, October 18 with the exchange rate at 1.1396, having been as high as 1.1423 and as low as 1.1328 already this week.

The pair is midway in a range between 1.1461 and 1.1312.

The price action comes as Pound Sterling treads water following a crucial mid-week meeting between European leaders on Brexit where it was decided negotiations must continue at pace in order to deliver a deal by year-end.

Markets were left with neither good or bad news and Sterling is therefore understandably left without a steer.

"Prices are trapped," says Robin Wilkin on the Global Cross Asset Strategy desk at Lloyds Bank. "Momentum studies are neutral and still offer little bias."

Above: The range identified by Wilkin. Note different data providers provide different highs and lows. While our chart shows the October 15 low at 1.1332 Wilkin's shows it at 1.1312. Therefore the exact delimiters of the range are not set in stone.

Wilkin does however say that while the exchange rate is above 1.1312 the broader technical outlook for the exchange rate remains bullish.

A break above 1.1461 is needed to allow a test of "the more important" medium-term resistance in the 1.1520-1.16 region.

"A subsequent break there would suggest a new dynamic," says Wilkin who says the exchange rate could and move into a higher range, topped by 1.1976-1.2121.

According to a report compiled by Horizon Currency Ltd, the GBP/EUR exchange rate is currently above where 48 major financial institutions are targeting the exchange rate to be at year-end. This includes targets submitted by Barclays, Goldman Sachs and J.P. Morgan. Is the Pound therefore overvalued. To look at the details of the report please follow this link.

Sterling could be left treading water over coming days, and even weeks as markets continue to await the expected Brexit deal.

The mid-week Brexit meeting of E.U. leaders in Brussels failed to yield any new insights with both the U.K. and E.U. instead committing to maintaining the current intensity in talks.

European leaders indicate they are poised to convene as soon as lead negotiator Michel Barnier reports progress.

There has been much talk of Prime Minister Theresa May posing the idea of an extension to the transition period by a year in order to avoid the need for a triggering of any backstop plan that would tie the U.K./Northern Ireland into a customs union if future trade talks fail to offer a satisfactory solution to the border question.

"Extending the UK’s Brexit transition period makes a lot of sense but Brexiteers will hate the idea," says PwC economist Andrew Sentance.

Indeed, initial reactions from members of her Conservative party (even former remain supporters) suggest the notion the U.K. remain locked under the spell of Brussels, and have to pay up to €17BN during this period, will not fly.

So the government is going to propose a €17 billion extension to the transition but refuse a £2 billion bail out of Universal Credit- good luck with that! https://t.co/k7rglLSBGG

— Nick Boles MP (@NickBoles) October 17, 2018Hence May will have used an oblique reference to the idea in her address to fellow leaders to test the reaction back home rather than formally present it.

"It cannot be described in any other way: the Brexit has turned into a task of Sisyphean proportions for May," says Thu Lan Nguyen, a foreign exchange strategist with Commerzbank.

Regardless of the ongoing political intrigue, currency markets remain resolute in their belief that its odds-on for a Brexit deal being struck before the end of the year.

"There was only a small negative reaction in the GBP," says Richard Falkenhäll, Senior FX Strategist at SEB in relation to the currency's response to this week's happenings. "It is too early to raise concerns the UK will crash out of the EU next year."

SEB are looking for the December 13-14 European summit to be the real deadline for negotiations.

"One thing seems certain though, GBP-volatility is likely to increase in the period until the December 13 EU-summit. We still bet there will be an agreement that allows the transitional period to kick-in on March 30 next year, which explains our EUR/GBP forecast of 0.86 by year-end," says Falkenhäll.

EUR/GBP at 0.86 gives a Pound-Euro exchanage rate of 1.1628.

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Retail Sales Disappoint

Retail sales declined faster than expected during September, according to Office for National Statistics data released Thursday, but economists say that earlier growth will still lift U.K. GDP for the third-quarter.

Retail sales fell by -0.8% during September, more than reversing the 0.3% gains seen back in August, which was a deeper decline than the -0.4% that financial markets had been looking for.

This was the result of a decline spending in food stores, which rose sharply during the preceding months given the abnormally warm summer.

1.2% growth in retail sales in the 3 months to September, with strong growth in jewellery shops and online stores https://t.co/IZq9DBwVhg pic.twitter.com/nr0NACpank

— ONS (@ONS) October 18, 2018That number pulled the annual rate of growth down to 3%, from 3.4% previously, but the uplift in consumer spending for the third-quarter as a whole was still a strong one. Even if it was a little lower than growth in the second-quarter.

"Although September’s retail sales figures were weaker than expected," says Ruth Gregory, an economist at Capital Economics. "Retail spending rose by a strong 1.2% over Q3 as a whole, suggesting that sales will provide a welcome 0.1ppt or so boost to Q3 GDP growth."

Third-quarter retail sales were boosted by an increase in spending on luxury items such as watches and jewlery, which is a positive omen for the economy. Although growth was higher, at 2%, for the second-quarter.

"Crucially, though, with inflation continuing to fall back – note that the retail sales deflator slipped from 2.2% in August to 1.8% – and pay growth on the up, there should be scope for consumer spending growth to gather some momentum further ahead," Gregory adds.

Retail sales account for one third of overall household spending, and the latter itself accounts for a significant portion of GDP, so spending data often provides important insight into the pace of U.K. economic growth.

Markets care about this because of the influence rising or falling consumption can have on inflation. It's inflation that central banks are attempting to contain when they raise interest rates, and changes in rates are the raison d'être for most moves in currency prices.

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Lock in Sterling's current levels ahead of potential declines: Get up to 5% more foreign exchange for international payments by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here