At the close of last week the euro/pound held below the 0.8222 previous range bottom. The UK retail sales were reported strong but this was not enough to push sterling from further gains against the single currency.
The EUR/GBP basically held a sideways trading pattern roughly between 0.8165 and 0.8205. The pair was changing hands in the middle of that range at the start of trading in Europe. A decent German IFO report pushed EUR/GBP for a test of the 0.82 big figure.
Mid morning, the UK retail sales came out much stronger than expected. There were exceptional factors, but the report was strong overall. EUR/GBP reversed the post-IFO gains, but a real test of Thursday’s low didn’t occur. Later in the session, the euro found a better bid overall and EUR/GBP joined this move. The pair revised the 0.8200 area after the close of the European markets, but failed to sustain above that level. EUR/GBP closed the week at 0.8197, compared to 0.8184 on Thursday
Today, the calendar in the UK is thin. Later this week, markets will look out for the first estimate of the Q1 UK GDP. Will the UK avoid a technical recession (two consecutive negative quarters). This is somewhat of a symbolic issue, but a reasonably good figure will confirm the assessment in the market that the BoE will not raise the amount of asset purchases at the May meeting.
After the Minutes of the Previous BoE meeting and decent eco data of late, an ‘on hold’ status of the BoE shouldn’t be a surprise for markets any more. So, the rally of sterling against the euro might slow going into the BoE meeting.
Nevertheless, the technical picture of EUR/GBP has deteriorated and the news flow will probably remain more supportive for sterling than will be the case for the euro. We maintain a negative bias for the EUR/GBP cross rate. Of late, we held the working hypothesis that a high profile event is needed to clear important support.
The Minutes might have been such an event, pushing EUR/GBP out of the previous range. Of course, several other key support levels are lining up like 0.8143, the August 2010 low and 0.8068 the June 2010 low. It could take time for EUR/GBP to break clearly below these high profile levels.