© Savo Ilic, Adobe Stock

- GBP/EUR above 1.1600 long-term range ceiling

- So long as market holds 1.16, bias remains to the upside

- Brexit uncertainty to dominate Pound; inflation the Euro

The Pound-to-Euro rate is set to begin trading at 1.1617 Sunday after having fallen around half a percent in the previous week, although the pair remains above its long-term range ceiling and studies of the charts suggest renewed gains this week cannot be ruled out.

Sterling fell last week amid heightened uncertainty over Brexit, after Prime Minister Theresa May failed in her third attempt to get the EU Withdrawal Agreement approved in the House of Commons.

There is now a risk of the UK leaving the EU without a deal on April 12, which would be negative for Pound Sterling. But there is also some prospect of another Brexit referendum or a general election being called in the coming weeks, which could be positive for Sterling if markets see it creating scope for the UK's EU-exit to be abandoned.

From a technical perspective, the outlook for GBP/EUR is marginally bullish given the pair remains above the key 1.1600 level, which is its long-term range ceiling. If the market breaks decisively back below this level on a closing basis then it would be a bearish signal, but so long as that level can be defended there is scope for renewed gains during the days ahead.

Above: Pound-to-Euro rate shown at weekly intervas.

Another bullish factor is the Japanese hammer candlestick which formed on the week before last (circled below). This is normally indicative of short-term gains, although the lack of follow-through in subsequent weeks suggests this signal may not be very strong.

Overall, a break above the 1.1801 2019 high would probably provide a green light for a continuation higher up to a target of 1.1960.

Above: Pound-to-Euro rate. Japanese Hammer candlestick pattern.

The daily chart also shows how the pair has pulled back down to the top of the long-term range, stopped and then reversed higher. This is a further suggestion of a bullish bias.

Sterling has been moving sideways since the middle of February, within a smaller range that looks very much like a consolidation pattern. Given the prior trend was up, a break higher is marginally more likely than lower.

Momentum, as measured by relative-strength-index (RSI), is declining. This could be a sign that the pair is about to weaken further however, it is a secondary signal and not yet sufficient to change the overall outlook.

Above: Pound-to-Euro rate shown at daily intervals.

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The Pound: What to Watch

The main event in the week ahead for Pound Sterling will be the opening of a new chapter in the Brexit saga, with markets now focused on April 12 as the new deadline by which the UK's withdrawal must be formally agreed.

Prime Minister Theresa May now faces as choice between pursuing a so-called no deal Brexit, and requesting from the EU another extension of the Article 50 negotiating window that will almost certainly require participation in the EU parliament elections.

There is still no one path ahead that can command a majority in the House of Commons, although MPs who've been attempting to sieze control of the Brexit process from the government will get another chance on Monday to force the government into pursuing a future relationship model they find more palatable.

Some of the ideas put forward by members of parliament include a "permanent customs union", the revocation of Article 50 and another referendum among others. All of those options are likely to meet fierce resistance from the minority of Brexit-supporters in parliament, while also being electorally controversial.

There is also a possibility Theresa May could try to hold a fourth vote on her withdrawal agreement although it remains to be seen whether or not she can win it.

Apart from Brexit drama, the March IHS Markit PMI surveys will also be released, although they are unlikely to have much impact on Sterling given the market's unrelenting focus on Brexit.

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The Euro: What to Watch

The main release in the week ahead for the Euro is inflation data, out at 10:00 am on Monday. Consensus is for inflation of 1.5% in March, unchanged from in February. Core Inflation, which leaves out volatile fuel, food alcohol, and tobacco components, is expected to slip to 0.9% from 1.0% in February.

Inflation is important for the Euro because it informs central bank policy on interest rates and this influences the currency.

Mario Draghi, the president of the European Central Bank, said in a speech last week he expects the ECB to keep interest rates low for some time yet because inflation is already too low and now the economy is slowing. Inflation is a function of demand so when the economy slows, price pressures tend to weaken.

The release of the minutes of the March ECB policy meeting, out at 12.30 GMT, on Thursday, will be another key moment in the week ahead. This will reveal the deliberations of the governing council during the last meeting and could be useful as a gauge of what they may do next. The risk is that growth concerns become so acute that they pivot policy towards increasing accommodation and completely write off raising interest rates for the time being.

The unemployment rate has been one of the bright spots of Eurozone data and it is expected to show a 7.8% rise in the week before - the same as the previous result. There is a risk it could be better-than-expected which would support the Euro.

Retail sales data for February is out on Wednesday and is expected to show a 0.2% rise compared to 1.3% previously on a month-on-month basis and a 2.0% from 2.2% rise on a year-on-year basis. Retail sales is a major contributor to overall GDP so if the data is better-than-forecast it could support the Euro and vice versa if it is worse.

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