Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. The pair spent most of June climbing, then had a downward correction during the first week or so of July, but now we see the bullish momentum has returned.
The situation of the British pound remains complicated. A lot depends on fundamental factors - how well the UK is recovering from the coronavirus pandemic, how impacted the economy has been, and even what the progress is in the negotiations with the EU about the post-Brexit relationship between the two sides. Economic reports this week have been mixed, showing a higher inflation rate than expected and better employment data, but a GDP drop of -24% YoY, which is worse than the forecasts. Especially due to the resurgence of the coronavirus in Europe, it is crucial to follow events in the UK and see if the kingdom manages to return to its normal economic activity without experiencing new massive outbreaks, which can further stall its recovery. Good news on the Brexit front will also be beneficial, but for now it seems the EU and the UK are still struggling to settle their differences. Thus, the outlook for the pound remains mixed.
The European single currency has a critical opportunity to strengthen this week, as EU leaders are gathering for another summit. They will be deciding what to do with the European Commission’s proposal of a 750 billion euro recovery fund that has created a rift between the financial conservative north (Sweden, Denmark, the Netherlands, Austria), and the much-in-need south (Italy, Spain, France), which experienced worse coronavirus outbreaks and has suffered a harder economic blow. There is still a lot of resistance from the Frugal Four regarding the recovery fund, so a unanimous decision this week will be highly surprising. But if it does come, the euro will undoubtedly receive a massive boost. Moreover, there is an ECB policy meeting today but it is not expected to upset the markets much.
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 0.9045 and 0.9020. The daily resistances are at 0.9090 and 0.9112. The indicators of technical analysis strongly recommend a buy position today.
