Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. The pair’s rapid descent came to an end last week and over the past ten days we have seen a bullish rally in the exchange rate. The pair is currently trading around 0.8690, which is the highest level since late February.
The British pound is currently demonstrating weakness against all major currencies, not just the euro. This is somewhat surprising, considering how strong sterling was in the first quarter of 2021, though it is possible that its rally was just a bit too fast and too steep, which would explain why it is now subjected to a reconsideration. In addition, the Bank of England lost its most hawkish member, Andy Haldane. So with stimulus and economic recovery in store for the United Kingdom, investors are having some of the same doubts they have about the US and the Federal Reserve. They worry that the central bank might insist on prolonged dovishness even when fundamentals start improving, allowing inflation to rise beyond the target levels, which will in turn pressure the pound. And without a hawkish voice in the Bank of England to advise in favor of hiking interest rates, this scenario is a real possibility for the United Kingdom, more so than it is for the United States.
Meanwhile, the euro is experiencing the opposite tendencies at the moment, compared to the pound. It had an awful first quarter of 2021 and now appears to have found enough strength to regain some of its lost ground versus major currencies. Still, the euro’s upside potential is limited because the European Union’s vaccination program is still behind schedule, even if it is a bit better now than it was a month ago. Plus, the latest decision of many countries to restrict use of AstraZeneca’s Covid-19 drug and Johnson and Johnson pulling their own 50 million doses from the European campaign over safety concerns are bound to create more gaps in the vaccination schedule.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8686, with the pair currently trading slightly below it. The daily support levels lie at 0.8672 and 0.8654. The daily resistances are at 0.8704 and 0.8718. The indicators of technical analysis agree in strongly recommending a buy position today.
