Currency Pair of the Week: EUR/GBP
Joe Perry December 7, 2020 9:01 AM
Given the ECB meeting,the EU Summit, and ongoing Brexit negotiations, EUR/GBP is a must watch.
We highlighted EUR/GBP the week of November 23rd, however given the ECB meeting and EU Summit this week, in addition to ongoing Brexit negotiations, it continues to be a must watch pair.
The ECB meets on Thursday this week and they have already signaled that they will provide more monetary stimulus to the hard-hit coronavirus bloc. With lockdowns and restrictions continuing, PMI data showed an unsurprising slowing of the economy during November. As European countries continue to work on a fiscal package, the ECB has indicated that they will extend the Pandemic Emergency Purchase Program (PEPP), possibly until mid-2022, and increase bond buying by possibly 500 billion Euros. There is also the possibility of cutting rates again, which are currently at -50%!
In addition, Thursday is the first day of the EU summit. One of the topics on the agenda is the budget approval, which includes 750-billion-euro stimulus for Covid-19 relief. Poland and Hungary are the two holdouts which have vetoed the budget. Both countries have said they will continue to veto the seven-year budget, which they claim is punishing them for their conservative values.
Brexit tensions are heating up as time is winding down. UK PM Boris Johnson will meet with European Commission President Ursula von der Leyen to try and take one last shot at hammering out a deal. However, earlier on Monday, the European Union’s chief negotiator Michel Barnier told MEPs that talks will not continue past Wednesday! Although a level playing field and governance over a deal remain key issues, the sticking point seems to be access to fishing waters around the UK. The UK wants to increase British fishing quotas as part of the deal, while the EU wants more access for its boats. The outcome of Brexit will most likely affect GBP pairs more than EUR pairs, as the tariffs will be more substantial to the UK.
Technically, on a daily timeframe EUR/GBP has been trading in a symmetrical triangle since the highs on March 19th. The pair put in a false breakdown below the triangle in mid-November, holding strong horizontal support and the 61.8% Fibonacci retracement level from the April 30th lows to the September 11th highs near 0.8910. Recently, the pair bounced back into the triangle and is approaching the downward sloping trendline of the triangle near 0.9180.
Source: Tradingview, FOREX.com
On a 240-minute timeframe, on December 1st EUR/GBP broke above a downward sloping trendline from the highs of September 11th and the psychological level of 0.9000. The pair retested that level on Friday, however on Monday the pair screamed higher to the 61.8% Fibonacci retracement level from the lows of September 3rd to the highs of September 11th near .9130. First horizontal resistance is just above between 0.9150 and 0.9183. Above there, EUR/GBP can extend up to the September 11th highs at .9294. Short-term horizontal support below crosses at 0.9083 then the psychological 0.9000 level. Below there is the previously mentioned trendline near 0.8950. Note that the RSI has recently moved above 70 into overbought territory, indicating that EUR/GBP may be ready for a short-term pullback.
Source: Tradingview, FOREX.com
Early in the week, Brexit headlines should rule the price action for EUR/GBP. Later in the week, add in the ECB and the EU Summit.
This could be a volatile week for EUR/GBP! Make sure to sure appropriate risk/reward management if trading this pair!
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.