Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. The rate is still within the upward channel the pair established at the end of November. At the moment, the pair is trading at its highest level in almost two months.
The next few days will be decisive for the British pound sterling since a final development on Brexit is expected to come by the end of the week. Last night UK Prime Minister Boris Johnson met with European Commission President Ursula von der Leyen to go over the key differences preventing the negotiators from reaching a deal. However, their meeting was uneventful, with both the UK and the EU reporting that they have still not found common ground on the most difficult points. In addition, Sunday has been agreed as the final deadline for the talks, as von der Leyen said there will be a final outcome by then; if not a deal, then at least a formal admission that there will be none. Though the British pound has been strengthening over the past few weeks due to hopes that the talks will yield some sort of compromise agreement, as well as the broad risk appetite among investors, sterling could weaken dramatically in a no-deal scenario. Recall that 43% of the United Kingdom’s exports are to the European Union. Under WTO rules, businesses will have to pay customs duties and other fees on each export/import, which will put a significant burden on the economy. Keeping up with the negotiations for the next three to four days is key here.
Meanwhile, the euro is taking a breather this week, not necessarily committing to any trends at the moment. Today there are two important events that will affect the European single currency. To start with, the European Central Bank is having its last policy meeting for 2020. The ECB is looking to soften its approach in order to support the eurozone’s recovery from the second wave of the pandemic. In addition, the European Council is beginning a two-day summit to discuss the most pressing issues: the Covid-19 response, climate change, and to a certain extent, the future trade relationship with the United Kingdom if a deal is not reached by Sunday. Expect the euro to hold flat for the next two days in light of these events.
In terms of the daily chart, today we have a pivot point for the pair located at 0.9027, with the pair currently trading above it. The daily support levels lie at 0.8969 and 0.8925. The daily resistances are at 0.9072 and 0.9129. The indicators of technical analysis agree in strongly recommending a buy position today.
