Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. Six days ago the pair took a sharp dip downward. The exchange rate has traded in a strong bearish wave since then, briefly falling below 0.84.
At present, the pound has every reason to strengthen. Brexit fears due to the dispute about the Irish Sea border have faded from the discussion surrounding the sterling for now. Instead, the pound has been boosted by positive data from the United Kingdom: improvements in unemployment and inflation, among others, indicate that the UK might be due for an interest rate adjustment very soon. Investors had priced one in at the previous meeting of the Bank of England, only to be left empty-handed. Nevertheless, this only contributed to a higher probability of an interest rate increase at the regulator’s next meeting in mid-December.
It is worth noting that there is some political turbulence in the United Kingdom right now. The ruling Conservative Party is losing popularity amid a series of accusations against MPs. Opinion polls indicate that the opposition Labour Party is seen more favorably right now. It is too early to say whether any of this will matter in the long term, but political conflicts are not out of the question and can hurt the pound the longer they persist.
As for the European single currency, it is set for weakness. First of all, the ECB has repeatedly stated that rising inflation is nothing to worry about, because it is all transitory. The regulator does not intend to hike interest rates in the EU for the next couple of years, weakening the euro in the long term. In addition, Europe is currently seeing rising rates of coronavirus infection and new lockdowns and other restrictions are back on the table. This may further harm the European economy during the winter months.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8405, with the pair currently trading above it. The daily support levels lie at 0.8373 and 0.8351. The daily resistances are at 0.8427 and 0.8459. The indicators of technical analysis agree in strongly recommending a sell position today.
