Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. After hitting a massive high in mid-March, the pair kept to lower levels in April and most of May. However, now the trend is shifting upward again and the euro keeps testing new resistances as it’s trying to reach the March maximum once more.
At the moment, investors are viewing the British pound in a bearish light. The United Kingdom simply has too many problems to contend with. Firstly, the UK was much delayed in introducing lockdowns and social distancing rules compared to the rest of Western Europe, so the coronavirus situation there remains more questionable than in other places. The damage of the pandemic has been so extensive that the Bank of England is considering slashing rates into negative territory to support the economy, though it is not expected to come at today’s meeting. This measure is also necessary due to the risks associated with Brexit. Policy-makers and economists in the UK fear that Boris Johnson’s cabinet will fail at securing a comprehensive trade agreement with the EU over the next few months, which is the worst possible Brexit scenario. In combination, these factors point to a prolonged deep recession for the UK and thus weakness for the pound.
The euro, on the other hand, is receiving better support from a policy-making standpoint. The heads of the governments of EU countries are meeting tomorrow to begin discussing the European Commission’s proposal for a 750 billion euro recovery fund. There will likely be some opposition from debt-conservative members but the bill is more likely to be revised than outright rejected, as it is clear several EU members need urgent financial support. Fundamental data is currently more of a background and does not heavily affect exchange rates since most countries seem to be doing with the same kind of negative fallout from the pandemic. Even so, inflation in the eurozone is in line with the forecasts, while in the UK it was lower than predicted. Overall, the euro has more factors in its favor at present and has the potential to keep gaining versus the pound.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8960, with the pair currently trading well above it. The daily support levels lie at 0.8929 and 0.8904. The daily resistances are at 0.8985 and 0.9016. The indicators of technical analysis agree on a strong buy recommendation today.
