Currency Pair of the Week: EUR/GBP
Joe Perry November 23, 2020 9:30 PM
Bottom line: Will there be a Brexit trade deal or not?
The coronavirus outbreaks are still wreaking havoc across all of Europe. Many countries are still in lockdown or under heavy restrictions. Help is on the way as talks of a widely available vaccine are roughly 6 months out but getting there will be the tough part. The UK is holding up well data wise, as their lockdown did not include manufacturing businesses and retail sales data were strong. European data isn’t as strong. For the UK, the Markit Composite PMI Flash for November was 47.4 vs 52.1 last, though the Manufacturing PMI was better. The European Markit Composite PMI Flash for November was 45.1 vs 50 last, with both manufacturing and services weaker. Both the ECB and BOE have indicated that they will provide more stimulus (though the BOE have talked down negative interest rates). And both the European Union and the UK are putting together additional fiscal stimulus, however the current EU budget is being vetoed by Hungary and Poland as they feel the budget punishes counties that block immigration.
Most of this information is being pushed aside at the moment as the world waits for the outcome of a Brexit trade deal. Bottom line: Will there be a Brexit trade deal or not?
This is the question that is going to ultimately move the EUR/GBP. As of Friday, not much has changed week. The same core challenges remain:
- An enforcement mechanism to govern the deal
- A level playing field (free and fair trade)
- Access to fishing waters surrounding the UK
To make discussions more difficult, an EU staff member has tested positive for the coronavirus last week, forcing the negotiating team into quarantine. Talks will continue virtually. The markets though are hopeful that “something” will happen THIS WEEK! Although there seems to be a new deadline every day, some key official deadlines are approaching, most importantly December 14th-17th which is the last EU Parliament meeting for the year and perhaps the last opportunity for all 27 EU member nations to agree on a deal. In the meantime, the deal needs to be hammered out and the language must be written and reviewed for the ultimate vote to take place. Otherwise, the UK leaves the EU with no-trade deal and significant tariffs and barriers to trade would be implemented, which would be more hurtful to the UK. As such, many EU leaders are telling their countries to prepare for no-deal Brexit.
As of mid-September, markets appear to believe that “something” will get done. On a daily timeframe, EUR/GBP has been in a downward sloping channel since September 1st, which indicates a stronger Pound relative to the Euro. On November 10th, the pair broke below a rising trendline from the April 30th lows near .8970. Since then, EUR/GBP put in a recent low of .8861, which is horizontal support and the 50% retracement from the February lows to the March 19th highs.
Source: Tradingview, City Index
If a Brexit deal does get done this week, expectations for a lower EUR/GBP (stronger GBP). As such, support levels to keep in mind are the lows at .8970, the downward sloping channel trendline near .8835, the 61.8% Fibonacci retracement level from the previously mentioned timeframe near .8740, horizontal support at .8670 and they February lows near .8281. If indications are that there will not be a Brexit deal, resistance above is at the downward sloping channel trendline and the upward sloping trendline near .9000, then way up at the September 11th highs near .9300, and then the March 19th highs near ,9490.
Keep in mind that Thursday is a US holiday and Friday is a half day. Liquidity will begin drying up significantly on Wednesday during the US Session and will continue to be light for the rest of the week. IF A DEAL IS REACHED TOWARDS THE END OF THE WEEK, WE COULD SEE EXTREMELY VOLATILITY IN THE POUND AND EURO. Make sure to use proper risk management!
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.