Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. In mid-May the pair reached two-month highs, but since then its movement has been erratic, with both ups and downs, though it still remains close to those March levels.
Things are a bit strained for the British pound at the moment. The country, like everyone else, took a big blow by the coronavirus pandemic, which is set to linger for many months ahead and might prompt the Bank of England to cut interest rates into negative territory soon. But on top of that, the United Kingdom also has to contend with Brexit. June 30 is the deadline for deciding whether to extend the transition period, which Boris Johnson shortened to December 31 from its original two-year duration. The PM is not likely to extend the period that he himself shortened, despite the delays in the negotiations caused by the pandemic. Moreover, any deals with the EU need to be done by October at the latest, otherwise they won’t be ratified in time. This gives the UK a very narrow window for tackling difficult negotiations and investors now fear there won’t be a deal with the EU. In that case, the UK will default to WTO rules, which are unfavorable and will deny proper access to the European single market. Quite understandably, all of these risks are pressuring the British pound.
The euro, on the other hand, is doing better nowadays. Thanks to stimulus proposals by the European Commission, as well as Germany and France, investors are hopeful that the bloc will agree on coordinated measures to deal with the economic fallout from the coronavirus. Plus, European economies are gradually reopening and we are seeing improvements in economic indicators, which is good news. Today there is an ECB policy meeting, where the central bank is expected to announce more stimulus measures as well, which will support the EUR further. If the ECB does not announce anything, the euro might slow down.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8917, with the pair currently trading well above it. The daily support levels lie at 0.8893 and 0.8854. The daily resistances are at 0.8957 and 0.8980. The indicators of technical analysis agree on a strong buy recommendation today.
