Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. Since the beginning of May, we have observed a slow but steady bullish movement in the trend.
The British pound sterling is facing too much pressure to strengthen, and in fact could be considered the weakest major currency at the moment. Fundamentals from the United Kingdom have been poor, which is not surprising, considering the coronavirus pandemic. But the UK’s economy has been hit so heavily that the Bank of England is now preparing to cut interest rates from their current record low of 0.1% to negative levels. Though it has not been confirmed at a policy meeting yet, this plan seems like a likely response to the sharp drop in inflation in April (to 0.8%), which has pushed the UK closer to an economic recession. Moreover, the fears that Prime Minister Boris Johnson might fail to secure a comprehensive trade deal with the European Union by the year’s end are also weighing on the pound.
The euro is not without its fair share of woes, as the European Union was also hit heavily by the coronavirus pandemic. As a result, fundamentals from the EU have not been much better than reports from the UK, showing the same tendencies of low PMIs, low inflation, and negative economic growth. However, the European Central Bank is not expected to adjust interest rates (which have been 0% since before the pandemic) anytime soon. Moreover, there is hope that European countries might finally agree on a coordinated financial plan to save their economies. The 500 billion euro stimulus plan proposed this week by Germany and France seems to hit all the right spots to possible appeal to both those countries that need the stimulus and the conservatives that typically oppose such measures. Thus, the euro could stabilize further if an agreement is reached.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8954, with the pair currently trading slightly above it. The daily support levels lie at 0.8923 and 0.8878. The daily resistances are at 0.8999 and 0.9030. The indicators of technical analysis agree on a strong buy recommendation today.
