- GBP/EUR consolidates on charts ahead of turn lower.

- After stalling at key levels amid bearish reversal signals.

- Elliott wave counts and weekly Doji candle point lower.

- UK flounders while Europe eyes easing of lockdowns.

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- Spot GBP/EUR rate at time of writing: 1.1495

- Bank transfer rates (indicative): 1.1193-1.1273

- FX specialist rates (indicative): 1.1323-1.1392 >> More information

The Pound-Euro rate rose by a grand total of thirteen points last week and is stalling on the charts just as the British currency risks becoming the 'sick man of Europe' again in a toxic combination of fundamentals and technicals that could put Sterling at financial crisis lows in the weeks ahead.

Sterling was little changed against the Euro after tracking sideways in a narrow and indecisive range through a week that was dominated mostly by the ebb and flow of risk appetite among investors and its knock-on implications for risk currencies like the Pound and to a lesser extent, the Euro.

Risk assets were supported through much of the week by further indications that many major economies have seen the worst of their own coronavirus epdiemics.

Those indications are increasingly stoking hope of a return to normal in many parts of Europe as well as in some parts of the U.S., although not in the UK, which is yet to even countenance a plan for lifting the lockdown of people and economy after lagging behind continental peers in containing the virus.

The UK is now increasingly at risk of becoming the sick man of Europe just as the outlook for Sterling turns negative on the charts.

"EUR/GBP continues to consolidate at the 55 day ma," says Karen Jones, head of technical analysis for currencies, commodities and bonds at Commerzbank, referring to EUR/GBP. "We note a 13 count on the 60 minute chart and positive intraday Elliott wave counts – they imply the end of the down move."

Jones has warned that a close above the April 14 Pound-to-Euro rate high of 1.1520 will negate her outlook for an eventual EUR/GBP rise to the 0.9803 high seen in the 2008 financial crisis, which equates to a Pound-Euro rate of 1.0200, but that otherwise Sterling is headed for 2008 lows.

Above: Pound-to-Euro rate at daily intervals with Fibonacci retracements of 2020 downtrend marked out.

Jones says that for Sterling to get to 1.02 a number of other important levels first need to give way, with those being 1.1084, 1.0840 and 1.0525 when expressed in Pound-to-Euro terms. These could all act as support along the way and temper the pace of the anticipated decline although Jones is betting the British unit takes out at least some of them. She advocated last week that Commerzbank clients bet on a fall in the Pound-to-Euro rate from 1.1412 but to abandon the pursuit if prices hit 1.1520.

Elliot wave counts are turning negative as the Pound consolidates around the 61.8% retracement of the 2020 downtrend, just above a cluster of key moving averages the overcoming of which should really be a bullish sign for the exchange rate. However, these have occured at the same time as the relative-strength-index momentum gauge has flattened on the daily and weekly charts and also alongside the formation of a 'doji candle' on the weekly chart.

"A doji pattern is formed when the open and closing prices occur at roughly the same level. Hence, this candlestick pattern does not feature a significant real body per se. Implications: The lack of a real body indicates market indecision in a bullish or bearish trend. As such, the doji pattern can serve as a bearish reversal pattern in an uptrend, or a bullish reversal pattern in a downtrend," says George Davis, chief technical strategist at RBC Capital Markets, in a brochure explaining key concepts to clients. More on that here.

The Doji candle on the weekly chart is a "bearish reversal pattern" that indicates Sterling has already had its days in the sun and the flattening relative-strength-index momentum gauges would produce something known as 'bearish divergence' on both the daily and weekly charts if accompanied over the coming days by a further rise in prices. All added up together these longer-term signals suggest that if Sterling doesn't turn lower over the coming days then it might only be a matter of time before it does.

"A bearish divergence takes place when prices move to new highs, while the indicator fails to confirm and turns lower," Davis says. "Divergences serve as a warning sign as they often coincide with or precede a change in trend."

Above: Pound-to-Euro rate shown at weekly intervals alongside 21, 55 and 200-week (light blue) moving-averages.

The charts are leaning bearish for the Pound-to-Euro rate at the same time as coronavirus developments are also threatening to weigh more heavily on the British currency, while becoming less of a burden for Europe's unified unit.

Italy, Spain and Germany, in addition to smaller countries like Austria and Denmark, have begun to lift some of the restrictions in place in their economies and where others are still in effect some are increasingly offering hope of a return to normal. Spain, the seat of Europe's largest outbreak and the second largest in the world, said over the weekend that from April 27 children will be able to go outside again subject to certain conditions but also that a third extension of the national lockdown would likely keep most people confined to homes for another three weeks.

The UK however, last in line to experience an outbreak, has offered no indication of when restrictions could be eased and due to the slow initial response to the national epidemic, might be among the last to get it under control. That would indicate a more protracted period of economic pain for the UK and could necessitate a greater level of fiscal support from a government that's already steward of the developed world's largest current account deficit, which has previously been described as the country's achilles heel and has already weighed heavily on Sterling once during the coronavirus crisis.

Above: Daily numbers of new coronavirus infections in Spain. Source: Worldometer.

This could be bad news for the Pound-to-Euro rate given the correlation between market expectations for bilateral growth differentials and exchange rates, the impact of which could weigh heavier if realisation of it on the part of the market comes alongside a heeling of a rift recently exposed at the European Council table. EU leaders will meet Thursday to discuss the bloc's response to the coronavirus pandemic and there's a mounting prospect of them endorsing the package agreed just more than week ago by the Eurogroup of finance ministers, which could ease concerns about financial instability on the 'periphery' as well as a political rift that had lifted anti-Euro sentiments in Italy.

"We will need to wait before assessing whether this new credit line will be linked to mechanisms and procedures different from the original ones," says Italian Prime Minister Guiseppe Conte in a Facebook post last week, without mentioning an earlier threat to reject the proposal that will see €540bn of funding made available to financially troubled Eurozone countries. Italy had opposed the plan because it requires members to tap the crisis era bailout fund that aided the hijacking of 'periphery' economy finances during the debt crisis and foisted often unwanted austerity upon them.

Coronavirus developments risk making the UK and its currency the 'sick man of Europe' again while an Italian endorsement of the collective response this week might ease pressure on the Euro-to-Dollar rate. If this leads EUR/USD to outperform the Pound-Dollar rate then it would condemn the Pound-Euro rate to losses because the latter is simply the sum of GBP/USD over EUR/USD.

Above: Daily numbers of new coronavirus infections in the UK. Source: Worldometer.