Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. It appears that the pair has finally overcome the flat trading range that defined most of its movement in April and early May. Now we are finally seeing a bullish breakout.
The situation of the British pound sterling is currently not quite favorable. Similar to other countries, fundamental reports from the United Kingdom have been disappointing, showing the economy took a heavy blow from the coronavirus pandemic. But because the virus affected Europe as well, things almost even out in that regard. However, the UK is also experiencing some political trouble at the moment. Prime Minister Boris Johnson was recently involved in a scandal where he defended one of his aides for breaking the lockdown measures while sick with the coronavirus. This has contributed to the mounting pressure on the PM who promised to deliver a trade agreement with the EU by the year’s end but still appears far from it, based on the lack of progress in the negotiations. Moreover, with the expectation of negative interest rates in the UK (but not in Europe), the pound will remain weaker than the euro.
These days we are seeing a gradual improvement in investors’ sentiment towards the European single currency. Things are beginning to turn around for the euro thanks to hopes that a plan for financial stimulus will finally happen. Last week France and Germany put forward a 500 billion euro proposal, while yesterday the European Commission announced a 750 billion euro recovery fund. The heads of governments from EU member states will gather next month and discuss everything, but with two proposals, even the more financially conservative members (the Netherlands, Austria, Sweden, Finland) are likely to budge. Additionally, the European economy is almost fully open again, so there are hopes of economic growth returning to the region. The euro could strengthen further if tomorrow’s inflation data does not disappoint.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8954, with the pair currently trading above it. The daily support levels lie at 0.8912 and 0.8844. The daily resistances are at 0.9023 and 0.9064. The indicators of technical analysis agree on a strong buy recommendation today.
