Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. Last week this exchange rate took a turn for the worse, causing the pair to drop to its lowest level since August. It seems to have stabilized around 0.85 for now.
At the moment, the bias for either one of these currencies is a bit mixed. They are both risk-loving assets and the current market situation has not been ideal for either one of them. In addition, both the United Kingdom and the European Union are experiencing the same energy crisis with the beginning of the heating season. Thus, it will likely be up to monetary policy to decide which currency has the upper hand.
Investors have more hawkish expectations of the Bank of England. The BoE was already close to tightening its policies earlier this year when the United Kingdom was doing better than everyone else in terms of handling the coronavirus pandemic. Things have taken a turn for the worse since the end of lockdowns in July, but inflation has risen significantly and the Bank of England might not have a choice but to hike interest rates soon. This gives the pound a bullish bias, provided upcoming fundamental reports are not disappointing.
The same factors apply to the European single currency. Nevertheless, the ECB is more likely to remain dovish in the long term, especially considering it already has a new asset purchases program lined up for when the current scheme expires in March. Thus, the euro appears less likely to strengthen on account of monetary policy alone, compared to the pound. It might, though, if fundamentals from the eurozone are better than reports from the UK.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8510, with the pair currently trading below it. The daily support levels lie at 0.8492 and 0.8475. The daily resistances are at 0.8527 and 0.8545. The indicators of technical analysis agree in strongly recommending a sell position today.
