- If 1.13-1.15 range has indeed broken, look for move down to 1.1150

- Service PMI data on Wednesday dominates Pound Sterling's calendar

- Watch Eurozone manufacturing data for signs of a continued rebound in area activity

Image © Lakov Kalinin, Adobe Stock

The British Pound triggered three-month lows against the Euro in the previous week as a a short-term support region cracked, exposing the exchange rate to the potential for further losses in the coming week.

The market had become increasingly compact, and we wrote extensively at the time that the market was liable to breakout in a more directional fashion. Unfortunately for Euro buyers, the move that transpired favoured the Euro.

The Euro shot higher across the board on Friday, June 29 on news EU states had sealed an agreement on migration, a move that offers respite to German Chancellor Angela Merkel whose coalition government faced collapse in the event of no deal being reached.

The Pound-to-Euro exchange rate tested a low at 1.1248 before recovering slightly to 1.1299 on the back of an unexpected upgrade to Q1 GDP data to just below the 1.13 level. This suggests to us there is the possibility that the exchange rate moves back into the 1.13-1.15 range that we have become so accustomed to over recent weeks.

If Monday/Tuesday trade can offer such a recovery then the move below 1.13 will likely be interpreted as a false break.

The range has proved incredibly reliable and any decent economic data out of the UK this coming week could well push the market back to levels the exchange rate is comfortable with.

Should the break below 1.13 be true the immediate target the market will be eyeing are the March 2018 lows at 1.1150 which now form the next discernible support level and the obvious downside target from here.

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Economic Data and Events to Watch for the Pound

The Week Ahead in the UK sees the economic data calendar return to life following a seven-day period in which the few releases of note were all concentrated in the final session of the week.

IHS Markit will release the latest surveys of purchasing managers across the manufacturing, construction and services industries over the first half of the week while a speech from Bank of England governor Mark Carney caps off the week's data on Thursday.

Markets are looking for the IHS Markit Manufacturing PMI, due at 09:30 am on Monday, to slip from 54.4 in May to 54.1 for the month of June.

Consensus suggests the construction PMI will rise from 52.5 to 52.6 and that the all-important services PMI should remain steady at 54 when the data are released at 09:30 on Tuesday and Wednesday respectively.

Economists and traders will watch all of these releases closely for an early steer on the likely condition of the UK economy during the final month of the second-quarter. While imperfect as a gauge of overall economic growth, the surveys do provide insight into activity levels within three of the UK's most important economic sectors.

Currency markets care about growth because it has a direct bearing on inflation and it is changes in consumer price pressures that central banks are attempting to manipulate when they tinker with interest rates, which are themselves the raison d'être for most swings in exchange rates. Changes in rates, or hints of them being in the cards, impact currencies because of the push and pull influence they have on international capital flows and their allure for short-term speculators.

The UK economy slowed sharply in the first-quarter so policymakers and economists have been watching for signs as to whether this was a seasonal blip or the beginning of a more protracted slowdown. Thursday Bank of England governor Carney will give an as-yet unspecified speech in Newcastle, England so markets will listen closely for clues as to his latest take on the economy, as well as the outlook for UK interest rates.

Economic Data and Events to Watch for the Euro

The week ahead in Europe sees a steady stream of economic data hit the wires each day, ranging from the latest IHS Markit PMI surveys of the bloc's various manufacturing and services sectors to unemployment figures for the month of May. However, all are relatively minor releases that will have only limited impact on expectations for economic growth, monetary policy and the Euro.

June's IHS Markit PMI survey of the Eurozone manufacturing industry is the most prominent release in the calendar for Monday, with economics looking for the index to hold steady at 55.0, in line with the number produced by the initial "flash" estimate produced in the middle of the month.

Tuesday markets will focus on Eurostat's estimate of bloc-wide unemployment for May, which is forecast to hold steady at 8.5% for the month. And Wednesday markets will look toward the IHS Markit Services PMI for the Eurozone, with consensus suggesting this too will hold steady at the 55.0 indicated by the flash release two weeks ago.

Both PMI indices have recently given back around half of the 12 month gains they were sat on back in January and February but are still nestled comfortably above the 50.0 no change level, which suggests the Eurozone economy is still growing at a decent, albeit reduced, rate.

Thursday, financial markets will focus on the Destatis estimate of German factory orders for the month of May, due out at 07:00 am London time. Economists are looking for industrial orders to have risen by 1.1% for the month, marking only a partial reversal of the -2.5% fall seen in April. German factory orders also fell by 1.1% in March and by 3.9% in January. German industrial production data for May will be released Friday at 07:00 also, with markets looking for output to have risen by 0.3% after a -1% fall in April.

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