Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. In the past three months the trend of this pair has formed three consecutive peaks, each higher than the previous one. Now the rate remains at a four-month high but has the potential to climb further up.
The British pound has several factors against it, despite a recent improvement in fundamental reports coming from the United Kingdom. Indeed, the UK is recovering from the coronavirus pandemic slowly but surely. However, Brexit weighs over the UK economy like a dark cloud. The negotiations with the EU are not going anywhere so far. In order for everything to go smoothly, a deal must be hashed out before October, as it needs to be ratified by individual EU member states. This leaves just two to three months for the EU and the UK to set aside their differences and reach a comprehensive trade agreement, something they have been unable to do in the seven months of talks elapsed so far. Ending the transition period without a deal would mean the UK-EU relationship will default to WTO rules, which will be worse for the UK than it would for the bloc. In addition, the United Kingdom recently spoiled its relationship with China as well, after ordering Huawei out of its 5G network. These political factors will continue to weigh on the pound in the foreseeable future.
As mentioned last week, the euro has entered a period of strength; this bullishness is not ready to go away yet. The European single currency is boosted by the prospect that the EU will shake off the worst of the coronavirus damage thanks to a 750 billion euro stimulus plan it accepted. Between that recovery fund, the ECB’s asset purchasing program and the bank’s recommendation that private banks do not pay dividends this year, the eurozone seems to have put the Covid-19 crisis under control. The long-term prospect for the euro is to keep strengthening, though we may see a short period of weakness when investors sell the EUR to take their profit.
In terms of the daily chart, today we have a pivot point for the pair located at 0.9066, with the pair currently trading above it. The daily support levels lie at 0.9042 and 0.9009. The daily resistances are at 0.9099 and 0.9123. The indicators of technical analysis strongly recommend a buy position today.
