Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. Last week the pair climbed to culminate in a three-week maximum just days ago. But yesterday the rate took a huge dip, erasing several days of gains, so it is as if last week didn’t happen.
The British pound remains one of the most volatile and unpredictable currencies at the moment due to the uncertainties surrounding Brexit. At last week’s European Council meeting, the EU projected a hard stance against compromises with the UK, which then prompted UK Prime Minister Boris Johnson to pretend that the kingdom is leaving the talks. However, the chief negotiator for the EU, Michel Barnier, is invited this week to continue the work towards a comprehensive trade deal. The United Kingdom was somewhat satisfied that some of its major concerns were finally addressed by Barnier in a speech he gave the EU yesterday, urging for respecting the UK’s sovereignty and for more compromises where fisheries are concerned. Thus, the two parties are heading into what is likely to really be the last round of negotiations, where they will have to make some tough decisions if they truly want a trade agreement. In the past, the pressure of running out of time has helped secure Brexit progress; it is unclear if it will be enough now. For this reason, any headline pertaining to the future relationship between the UK and the EU will be essential for the pound, whose overall outlook is neutral. The sterling is also exposed to possible weakness from poor fundamental data as a result of lockdowns around the UK, but for now Brexit remains a far more important factor.
As for the European single currency, the pandemic is playing a large role once again. Yesterday Europe saw almost 200,000 new cases (up from the 130,000 daily averages of last week), which indicate just how severe the current situation is across the continent. Some of the most important economies within the EU are also among the worst-affected countries - Spain, France, Germany, Italy, the Netherlands, Belgium. Ireland has already entered a six-week lockdown, while France and Spain experimented with partial lockdowns in the areas with the highest number of Covid-19 cases. Nevertheless, if the situation continues to worsen it is possible that more EU member states will adopt nation-wide lockdowns to contain the virus, which in turn will strain the bloc’s single economy further. As a result, the euro is not able to rally.
In terms of the daily chart, today we have a pivot point for the pair located at 0.9055, with the pair currently trading below it. The daily support levels lie at 0.8970 and 0.8925. The daily resistances are at 0.9100 and 0.9185. The indicators of technical analysis agree on a strong sell recommendation today.
