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- GBP/EUR trading with above range highs.

- Bullish bias in place but risk of weakness remains.

- 3rd Brexit vote key for Pound; German data for Euro.

The Pound-to-Euro rate is set to beging trading around 1.1672 Sunday after closing the previous week around half a percent lower, although technical studies of the charts suggest the market still has a bullish bias and that the exchange rate could rise in the days ahead.

The GBP/EUR pair fell at the start of last week after it the government requested from Brussels only a very short delay to the Brexit process. It recovered later, however, after the EU left the door open to a much longer extension of the Article 50 negotiating window, and potentially an indefinite one if Prime Minister Theresa May fails again to get the EU Withdrawal Agreement through parliament.

Pundits are still suggesting she will struggle to win enough votes for her deal to be approved next week so there is at least one fundamental reason for why the Pound could rise during the week ahead as a third failure of the Withdrawal Bill to clear parliament might see the market fixate on the odds of Brexit being abandoned by the government or prevented through a second referendum.

Speculation over the future of Prime Minister Theresa May and government in the UK will also be an important driver of the Pound in the week ahead.

From a technical perspective, our forecast for GBP/EUR is bullish and based in part on the strength of the recovery seen at the end of last week.

Above: Pound-to-Euro rate at weekly intervals.

One very bullish factor is that the pair now sits above its long-term range high of 1.1600. Another is that the market has formed a bullish hammer candlestick on the weekly chart.

This is normally indicative of short-term gains. A break above the 1.1801 year-high would provide a green light for a continuation toward the 1.1970 level.

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

The daily chart shows retreating back to the 50-day moving-average (MA) last week, where it stopped before reversing higher. The rebound off this key level strongly suggests the correction lower has finished and the dominant up-trend is renewing.

The 4-hour chart is more ambiguous. Friday’s recovery broke the pattern of descending peaks and troughs but not strongly enough to make for a complete reversal. This being the lay of the land on the shorter period charts suggests the risk of weakness remains.

A move below the 1.1463 lows would pave the way for a continuation down to 1.1410, which is the S1 monthly pivot. However, given the strength of the rebound on Friday, that doesn't look likely at the moment. Nevertheless, it remains a risk.

Above: Pound-to-Euro rate shown at 4-hour intervals.

The Pound: What to Watch

The main event for the Pound in the week ahead will be the third parliamentary vote on the government’s EU Withdrawal Agreement, although an exact date is yet to be set.

If Parliamentarians support the bill the UK will leave the EU on May 22 under the Withdrawal Agreement. But if MPs reject it then there the government has said it will offer a series of "indicative votes" to MPs, giving Parliament an opportunity to express its desired course.

At that point there will still be a risk that the UK leaves the EU without a deal and the key date in focus will be April 12, although this could change the moment the EU agrees to a further extension, if and when it does.

If Parliament was succesful in foisting another referendum or a general on the electorate, another much longer extension is sure to be required, alongside participation in the EU parliamentary elections.

However, and alternatively, if Parliament was to back the idea of a customs union with the EU or some other model of post-Brexit relationship it's possible that no further extension would be required as the details of such a relationship would be thrashed out in the second stage of the negotiations.

But the government must notify the EU of the path it intends to take before April 12.

“Leaving on April 12 without a deal is now the default path, and while that will most probably be avoided at the end, the mere fact this massive risk still lurks in the background is likely enough to keep sterling under pressure for now,” says XM's Hadjikyriacos.

On the data front, the next key release for the Pound is the final estimate for final quarter GDP growth, due out at 09:30 on Friday. Consensus is for growth to be confirmed at 0.2% for the final quarter and 1.4% for 2018 as a whole.

The Euro: What to Watch

The main release for the Euro in the week ahead is the Ifo business sentiment survey from Germany, which is out at 09:00 GMT on Monday.

The Ifo, like the ZEW, is often seen as a good leading indicator for the economy. The Ifo can move the Euro if it surprises to the up or downside.

The headline index is seen rising from 98.5 to 98.7 in March, based on an anticipated improvement in the "future expectations' subindex, which is expected to offset another decline in the 'current conditions' barometer.

“Bearing in mind the disappointment in Germany’s manufacturing PMI for the same month, investors will pay a lot of attention to the Ifo prints, in order to either confirm or cast doubt on the narrative that Europe’s growth engine slowed further in Q1,” says Marios Hadjikyriacos, an analyst at XM.com.

The other important release for the single currency is the flash estimate of German inflation. This is always out just days before the Eurozone-wide print and is quite a good early indicator for the broader gauge.

Consensus is for German CPI to remain at 1.5%, based on a 0.6% month-on-month increase in March, when it is released at 09:00 on Thursday, March 20. Markets are looking for EU harmonised CPI to rise by a stronger 1.6% in March, up from 1.5% previously.

“The nation’s EU-harmonized CPI rate is projected to tick down to 1.6% in yearly terms, from 1.7% in February. While this seems discouraging, the pullback could be owed mainly to movements in energy prices, so investors may prefer to wait for the core CPI print for the entire euro area – due on April 1 – before drawing any conclusions about the outlook for price pressures,”

A higher-than-expected inflation reading could be positive for the Euro and vice versa for a lower reading.

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