Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. Towards the end of last week the rate began to decline. These past couple of days we have seen the trend almost flatten around the 0.9040 level.
The outlook for the British pound sterling is pretty neutral at the moment. The United Kingdom is fighting a severe coronavirus outbreak at the moment, with curfews and limited lockdowns in place, but these factors are more likely to weigh down Q4 data than current reports. In general, the spread of Covid-19 in the UK is not a particularly strong factor because a similar development of the pandemic is observed in the EU and in the United States, i.e. every major economy is in the same boat when it comes to the virus. Moreover, Brexit has entered an uncertain stage; both the EU and the UK seem determined to reach a deal and the negotiations are continuing, but with all set deadlines expiring, no one can say for certain how long it will take them to reach a compromise, or if they will succeed at reaching one at all. For now it is business as usual for Brexit and investors remain hopeful of a deal.
The most important factor for the euro is today’s meeting of the European Central Bank. There is an increased expectation among investors that the ECB will change its tone at this meeting (if not its policy) to reflect the pessimism associated with the deterioration of the coronavirus pandemic in the EU. At present it may be too early to make a dovish move, but ECB President Lagarde might signal that at the next meeting the bank could make more substantial changes aimed at supporting the struggling economy. With lockdowns in many European countries being announced this week, the services sector will likely suffer even more damage, making the recession on the continent even deeper. Thus, the long-term prospects of the euro indicate a weakening.
In terms of the daily chart, today we have a pivot point for the pair located at 0.9044, with the pair currently trading slightly above it. The daily support levels lie at 0.9011 and 0.8980. The daily resistances are at 0.9075 and 0.9108. The indicators of technical analysis agree on a strong sell recommendation today.
