Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. Looking at the chart, we can see that the rate has been slowly but steadily decreasing since mid-September. Just two days ago, it hit a two-month minimum, but has rebounded off of it since then.
The British pound is under an increasing amount of pressure due to the Brexit negotiations. The EU has set the new deadline for reaching a trade agreement to November 15, after its softer expectation for a deal by the end of October proved futile. Though this deadline is this Sunday, both the UK and the EU have stated they will continue the talks into next week. A deep divide on the key points in the agreement still remains and analysts are getting increasingly more pessimistic that a compromise will be found on such short notice. In terms of fundamentals, this week we saw unemployment rise in the UK due to the end of the government’s furlough scheme. In addition, GDP reports today were all behind the forecasts. Considering the ongoing coronavirus outbreak in the United Kingdom, the economy is likely to remain in a bad shape for a while, even with the Bank of England’s latest stimulus package. There is also more and more discontent regarding Boris Johnson’s government, so the country might soon add domestic politics to its long list of troubles. The prospects of the pound are not good, all things considered.
The economic sentiment in Europe is also quite subdued as indicated by this week’s ZEW surveys. The EU is struggling with a severe coronavirus outbreak and many of its chief economies have re-entered lockdowns in an attempt to slow down the rate of infection and give their respective healthcare systems time to adapt. Nevertheless, Covid-19 is expected to leave an even deeper dent into the EU’s economy, which is going to prompt a further monetary policy loosening by the ECB in December. Thus, the euro is to a large extent facing the same challenges as the pound. Still, the lack of a trade agreement is expected to be rougher on the pound than it will on the euro. Moreover, the EU might be positioning itself to patch things up with the United States once Joe Biden is in office, which will further improve its trade prospects next year. The most important fundamental for the EUR this week will be tomorrow’s GDP data, which may cause more volatility in euro pairs.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8894, with the pair currently trading above it. The daily support levels lie at 0.8868 and 0.8832. The daily resistances are at 0.8930 (overcome) and 0.8956. The indicators of technical analysis agree in strongly recommending a sell position today.
