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- Pound to be driven by EU Council summit + Saturday Parliamentary vote

- Possibility of move to range highs at 1.1600 if Brexit cards fall in place

- UK Employment and inflation data will be watched

- Euro to be driven by Brexit and industrial production numbers

The Pound-to-Euro exchange rate is trading at around 1.1461 at the start of the new week, after rising over 2.00% over the course of the previous week.

Our technical studies of the charts indicate the bulls are back in control and likely to push the exchange rate higher over the following days; however Brexit headlines will continue to be the primary driver of Sterling and therefore we expect substantial volatility.

Traders will watching the EU Council summit that runs from Thursday 17th to Friday 18th to see whether a Brexit deal can be struck between the EU and UK.

The Pound surged on reports last week that the two sides were getting closer to agreeing a deal; if they finally reach an agreement the gains will likely continue.

A failure to agree a deal would however probably see the Pound give back some, if not all, of its recent gains as the future of Brexit and UK politics are once again thrown up in the air. Therefore, the promise of volatility over coming days is high and we warn against complacency.

Of course, achieving a Brexit deal between the UK and EU is only half the equation: that deal must then be voted through Parliament on Saturday's sitting.

Numbers are extremely tight, and all Prime Minister Boris Johnson's allies, and some opposition party MPs must vote for the deal if it is to pass and finally put the uncertainty of the past three years to bed.

We will be waiting news through the course of the week as to whether Northern Ireland's unionist DUP - key allies of the Conservative government - will back a new deal based on its provisions for the Northern Ireland border. We feel if they are on board then most of the 'Brexiteer' MPs that voted against Theresa May's deal could come on board too.

A rejection by the DUP would almost certainly leave any deal that comes back to Parliament 'dead in a ditch', as the saying goes.

This would be a significantly negative turn of events for Sterling and readers should be aware that such a headline could come through at any point during the week.

Brexit aside, technical studies advocate for further gains.

The 4 hour chart - used to determine the short-term outlook, which means the coming week or next 5 days - shows how the pair suddenly reversed at the October 10 lows and started rising.

This uptrend is so steep and strong it will probably continue rising up to a potential target at the 1.1600 range highs. A break above the 1.1501 highs would supply confidence for this call.

The RSI momentum study in the lower pane is mirroring the sharp rise in the exchange rate which suggests the uptrend is accompanied by strong momentum and supports the bullish outlook.

If the pair reaches the 1.1600 level it will probably pull-back since this represents a major long-term range high.

Whilst it could eventually breakout higher from the range the chances of this happening on a first touch are low.

The daily chart shows how the pair ended last week rising in two very strong, long, green, up-days.

These probably mark the beginning of a longer up move which will probably initially reach resistance at the 1.1600 range highs and then perhaps rally up further to an eventual potential upside target at 1.1800.

A break above the 1.1501 highs would provide confirmation of an extension higher.

The pair looks like it might be forming a bullish ‘measured move’ or ‘ABCD’ pattern which is a three wave zig-zag pattern higher.

These patterns are useful for forecasting purposes as the first (A-B) and third (C-D) waves tend to be of equal length, so if you know the length if A-B you can forecast the length of C-D and the eventual endpoint of the move.

For the pattern on GBP/EUR this suggests an endpoint at 1.1800, however, a clear break above the range highs, confirmed by a move above 1.1650 would probably be required to indicate an extension to the final target.

The daily chart is used to analyse the medium-term trend, which is the next week to month of price action.

The weekly chart shows how the pair surges back up and formed a very bullish, green, candlestick during the previous week.

This is a signal of a probable extension of the uptrend which began at the late July lows.

From here the pair is highly likely to continue up to the range highs at 1.1600 as already highlighted on the lower time frames.

A further break clearly above the range highs, signalled by a move above 1.1650 would provide confirmation for a continuation up to the next target at 1.1800.

That it likely to mark the conclusion of the measured move highlighted on the daily chart and a pause and pull-back may possibly follow. Such a pull-back could see the pair return to the 1.1600 range highs again which will provide support floor where once was resistance.

The weekly chart is used to analyse the long-term trend, defined as the next several months of market action.

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UK Week Ahead: Data to Watch.

Labour market data is expected to show the unemployment rate remain at a historic 3.8% low, 23k new jobs added in September, and average earnings (plus bonus) rise 3.9%, when data is released on Tuesday at 9.30 BST.

If the actual data comes out in line with expectations the Pound will remain supported.

Significantly lower results, however, would revive recession fears.

Inflation data is expected to show a 1.8% rise in September, when released at 9.30 on Wednesday, from a prior 1.7% yearly increase, which would be about in line with the Bank of England’s target.

A substantially lower result would start to see inflation creep below the target zone and increase expectations of the BOE cutting interest rates, leading to a weaker Pound.

Lower interest rates are negative for the Pound since they tend to attract lower foreign capital inflows.

Despite high inflation being seen as an economic bugbear, higher inflation would support the Pound, since it would probably reflect stronger consumer demand which is indicative of a better growth outlook.

Retail sales is forecast to show a 3.2% rise on a yearly basis and a 0.1% increase on a monthly basis when data is released on Thursday at 9.30 BST.

This is likely to be a further indicator of consumer demand with a higher-than-expected result likely supporting Sterling and a substantially lower-than-expected result weighing.

The Euro: What to Watch

The key event for the Euro will probably be the outcome of Brexit negotiations as they reach fruition at the EU summit on Thursday and Friday, since this is a ‘last chance saloon’ for the two sides to broker a deal.

It is in the Eurozone’s interests to broker a deal given the UK represents an important trading partner for the block, but they will be weighing the importance of maintaining good relations with their unruly neighbour with maintaining the integrity of the European Union. as a whole

If a deal is agreed, however, the Euro will rise, even if it is not as much as the Pound.

Likewise no-deal could fuel further uncertainty and weaken the single currency, although too many locking mechanisms now appear to be in place to prevent an actual ‘no-deal’ Brexit on October 31, so declines could be measured.

The other key release for the Euro is Eurozone industrial production which is forecast to show a 0.3% rise in August from a 0.4% fall in the previous month.

“The Eurozone’s (particularly Germany’s) relatively higher reliance on industry as a share of the economy has brought the region to the brink of recession,” says Wells Fargo in an economics briefing to clients.

“The key question, in our view, is whether the industrial slowdown spreads to other areas of the economy. There are initial signs this is happening, as the Eurozone services PMI fell sharply last month, while industrial orders for consumer goods have showed particular weakness recently. We are not yet ready to call time on the Eurozone economic expansion, but the divergence probably cannot last forever. Either the industrial sector needs to recover, or it will likely drag the rest of the economy down with it,” adds Wells Fargo.

The ZEW sentiment index which is compiled from a survey of 3000 financial professionals is also out next week, and could impact on the Euro.

The ZEW is forecast to show a fall to -33 from -22.4 in October when released at 10.00 on Tuesday.

The ZEW is viewed as a fairly reliable leading index for the economy so a deeper-than-expected decline would weigh on the Euro whilst a higher-than-expected result would support the currency.

Time to move your money? Get 3-5% more currency than your bank would offer by using the services of a specialist foreign exchange specialist. A payments provider can deliver you an exchange rate closer to the real market rate than your bank would, thereby saving you substantial quantities of currency. Find out more here.

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