Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. The long-term trend has been consistently bearish since about the middle of September. Within the last three days we’ve observed an upward short-term trend but this may just be a correction, not a broad trend reversal.
It would hardly surprise anyone to learn that the biggest factor impacting the British pound sterling is still Brexit. The United Kingdom and the European Union are technically still negotiating their future trade relationship because the transition period for the UK ends on December 31. But the two have already missed several deadlines for a deal and now they truly are in the final stretch of the talks. The Christmas holidays are looming ever closer and governments will need the legislation to be ready and ratified before then. Things are also a bit more complicated due to one of the EU negotiators contracting the coronavirus, and Michel Barnier having to quarantine himself. Recall that 2020 has so far demonstrated that the talks go better when they are held in person. Still, both parties are still talking, which is encouraging investors. In fact, reaching a deal is already included in the value of the pound at present. If the negotiations fall apart and fail to produce a deal, the sterling will weaken significantly.
As for the euro, its prospects are not much better, especially considering the trouble with implementing the European Commission’s stimulus package. Despite gaining approval after difficult negotiations earlier in the summer (which drove the euro’s massive rally in July), the bill has now been vetoed by Hungary and Poland due to a dispute about the role of rule of law in allowing access to the funds. This means that Europe will have a harder time recovering economically. The picture will become even grimmer for the euro once Q4 reports start rolling in, showing the damage from the current lockdowns. The only reason we are seeing a bullishness in the euro at the moment is optimism about the availability of Covid-19 vaccines and a speedy recovery around the globe in 2021, which is bolstering risk appetite.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8910, with the pair currently trading above it. The daily support levels lie at 0.8879 and 0.8858. The daily resistances are at 0.8931 and 0.8962. The indicators of technical analysis agree in strongly recommending a sell position today.
