Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. The successful negotiation of a trade agreement between the EU and the UK pushed the pair lower in the last days of 2020, but now the upward trend has resumed.
Though the fact that the United Kingdom managed to secure tariff-free trade with its biggest partner, the European Union, is better for the economy than not having the deal at all, it remains to be seen how the UK economy will be affected by the changes in its relationship with the bloc. This has added a degree of skepticism to the pound, weakening it. In addition, the United Kingdom is currently experiencing its worst coronavirus outbreak to date, thanks to a new variety of Covid-19 discovered in the UK, which is estimated to be extremely contagious. The UK is in the process of vaccinating its population with both Pfizer’s and AstraZeneca’s drugs but this will take months, leaving millions of UK residents vulnerable to the new strain of the virus in the meantime. The UK is entering a stricter lockdown as a result, which will further affect the kingdom’s economy. Thus, the pound has some reasons to weaken in the foreseeable future.
As for the European single currency, it is definitely more stable than the pound at present. Yes, the coronavirus still poses a threat to the EU as well, and Germany will also be extending its lockdown over the next six weeks. However, the numbers on the continent are not as alarming as in the UK. Investors are demonstrating a lot of trust in the euro for now, in part because there is a higher demand for risky assets at the moment. Today’s report on inflation in the EU was in line with the forecasts, while economic and industrial sentiment in December improved more than expected, giving the euro more leverage over the pound.
In terms of the daily chart, today we have a pivot point for the pair located at 0.9053, with the pair currently trading below it. The daily support levels lie at 0.9019 and 0.8982. The daily resistances are at 0.9090 and 0.9124. The indicators of technical analysis are a bit mixed but lean towards recommending a buy position today.
