Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. Though this pair remains relatively volatile, there has been a clear downward momentum since last week that is likely to continue for a few days more.
While it is clear that at the moment the British pound is rallying against the euro, this move is not altogether a result from a newly found strength in the pound. Indeed, the GBP is still facing the same pressure as before, mostly as it pertains to a trade agreement between the United Kingdom and the European Union. Time is ticking away; the two sides have more or less until the end of October to decide on the terms of their future relationship, otherwise they will default to WTO rules come January. Similar to the Brexit negotiations last year, the UK government and the EU negotiators appear to be putting things off until the last minute, with virtually no progress on a deal so far. This trend will continue to depress the pound. The rally we are seeing right now, then, has nothing to do with the pound and everything to do with the euro, which is weakening.
The European single currency has lost its bullish impulse due to a souring of investors’ mood regarding the economic recovery in Europe. Though fundamental reports have been good recently, the European Central Bank warned in its most recent minutes that the results are due to immense optimism about the recently approved stimulus plans in the EU, not because of actual progress in terms of recovery. In addition, the recent spike in coronavirus cases in several countries in the European Union has also raised a few red flags for economists. Until the September ECB policy meeting there simply isn’t anything that can boost the euro.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8968, with the pair currently trading below it. The daily support levels lie at 0.8931 and 0.8909. The daily resistances are at 0.8990 and 0.9027. The indicators of technical analysis agree on a strong sell recommendation today.
