Image © Adobe Images
Pound sterling is on the offensive against the euro.
The pound to euro exchange rate (GBP/EUR) has broken above a key resistance level to register its highest level since October at 1.1490.
The new two-month peak follows the Christmas period of consolidation that saw GBP/EUR struggle to advance above the 100-day exponential moving average (EMA), presently located at 1.1470.
The 100-day EMA held the pound's year-end advance, and we said last week that a break through this resistance barrier would open the door to 1.1520, which is the next major technical zone of interest.
That breakout now looks to be in train. The technical setup is constructive with the pair comfortably cocooned in a short-term uptrend, helped by constructive global market conditions.
Those with payment requirements in the new year should consider setting an automatic buying order to trigger purchases at your desired levels, which our partners at Horizon Currency are able to assist with.
Year-end was characterised by rising stock markets, with the UK's FTSE 100 hitting a new record above 10K last Friday. With no domestic data to bother pound sterling, GBP/EUR drifted higher in tandem with the upbeat mood music.
Should this continue to play out in the coming days, then GBP/EUR can achieve 1.1520 and perhaps go even higher.
It's a quiet week data-wise in the UK, but the Eurozone will offer up some CPI inflation numbers.
Here, any strength would reinforce the notion that the European Central Bank (ECB) won't cut interest rates any further while raising the odds that the next move will be a rate hike.
This should bolster short-term Eurozone bond yields, which are heavily influenced by the ECB's base rate. Firm Eurozone bond yields, in turn, offer support to euro exchange rates.
The Eurozone CPI inflation release comes on Wednesday, and the consensus expects 2.4% y/y, confirming inflation is anchored above the ECB's 2.0% target.
However, we would expect some market reaction to German CPI inflation, due on Tuesday, as the German data often gives a strong clue as to where the Eurozone's figures will land the following day.
With ECB policy expectations deeply entrenched, we doubt the market reaction to the inflation data will be long-lived, meaning any GBP/EUR setbacks would be temporary.
Our bet is that global sentiment will stay in charge, and further gains in world stock markets will assist GBP/EUR higher.