EUR/GBP Direction Remains Neutral
- British PMI climbed out of negative territory
- UK government repeated it won’t be extending Brexit transition period
- Direction for EUR/GBP remains bearish-neutral in the short term
The EUR/GBP pair is trading this Wednesday at around the 0.860 level according to the current market sentiment. UK Prime Minister Boris Johnson said this week that the government would not be extending the Brexit transition period beyond January 31. The influence of Brexit is still very strong, and any positive news about it would offer fresh support to the pound.
Early election prime GBP driver in coming weeks
According to the latest news, the Producer Price Index in the EU rose on a monthly basis by 0.1% and declined by 1.2% when compared to a year earlier. This is in line with market expectations. The euro is also supported by very good German data, as factory orders beat the market’s expectations.
Despite this, the latest news from the EU was quite discouraging as the economic slowdown continues. Inflation in the EU is still below expectations, and this situation confirms speculation that the ECB won’t hike rates until 2020. ECB President Christine Lagarde also warned that the uncertainty related to geopolitical factors is a threat to economic growth.
Brexit uncertainty still hurts the market, and the market still has its doubts about the final outcome. The situation in the UK is also connected with the outcome of an early election, which will also have a big influence on this currency pair.
Technical analysis
In the last two weeks, this pair has been trading “sideways”. The price has been moving from 0.860 to 0.865 most of the time. The EUR/GBP is now trading above the 0.86 level, but the price has weakened recently below 0.86. This could be an indication that the price could weaken even more and maybe reach 0.850.
According to the technical analysis, the direction for EUR/GBP remains bearish-neutral in the short term. If the price falls below 0.855, it would probably reach the 0.850 support level very soon. If the price breaks the strong support at 0.850, that would be a strong “sell” signal.
Background noise and conclusion
Keep in mind that this currency pair is highly sensitive to the final outcome of Brexit. It is also important to say that EUR/GBP pair is less volatile than other euro- or pound-based crosses because of the economic closeness and interdependence between the two.
According to the fundamental and technical analysis, the major direction for this pair remains “bearish”. And as long the price is below the 0.900 level, the risk is clearly leaning towards the downside.
If the price breaks the strong support level at 0.850, we would have an open way to the 0.840 level.