EUR/GBP Gains Momentum to Retest 0.8480, Quick Trade Plan for Next Week
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- EUR/GBP experienced a spike in demand amid a combination of risk-off flows.
- ECB will stop further bond purchases under its pandemic-era support scheme early next year.
- A breakthrough above 0.8480 can create additional room for an upswing until a 61.8% Fibonacci retracement level of 0.8500.
The EUR/GBP closed at $0.8486 after setting a high of $0.8498 and a low of $0.8411. The EUR/GBP surged for another session on Friday and reached its highest since November 15th. In this update, we will uncover the fundamental events and discuss a potential EUR/GBP trade plan for the week ahead.
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The EUR/GBP experienced a spike in demand amid a combination of risk-off flows. The dovish repricing of central bank expectations regarding the latest coronavirus developments. However, the thin market liquidity conditions due to the US holidays were exacerbating reactions in the market.
ECB President Christine Lagarde’s Stance on Policy
According to ECB President Christine Lagarde, the ECB will stop further bond purchases under its pandemic-era support scheme early next year. However, there will still be other purchasing programs in its toolkit.
These comments from Lagarde came after two top officials from the ECB said on Friday. She said the central bank had plans to end its PEPP in March despite the threats from a new variant of the coronavirus and rising infections.
COVID-19 fears continue to weigh on the market
This week, a new coronavirus variant was discovered in South Africa, which alarmed global authorities and investors. Meanwhile, the European Union and Britain tightened border controls as scientists found out whether the variant was vaccine-resistant.
Lagarde reaffirmed these comments and said that PEPP would end in March, and the official decision is expected next month. This shift in central bank pricing benefited the single currency euro. It was already strong following the release of positive macroeconomic data on Friday.
A quick economic outlook
At 12:00 GMT, German import prices increased by 3.8%, exceeding the forecasted 2.0%, bolstering the euro and increasing the upward pressure on the EUR/GBP. At 14:00 GMT, the M3 money supply also increased to 7.7% against the predicted 7.4% and supported the euro and added further gains in EUR/GBP. Private loan growth for the year increased to 4.1%, compared to the expected 4.0%, bolstering the euro and pushing the EUR/GBP further to the upside.
BoE chief economist Huw Pill shares the hawkish stance.
The new Chief Economist of the Bank of England, Huw Pill, said the recovery of the UK economy from the pandemic was sturdy enough for the central bank to exercise policy action. That’s despite the fears over the new variant of the coronavirus.
These comments raised expectations of the Bank of England increasing borrowing costs next month. The favorable comments from Pill added strength to the British Pound on Friday but failed to reverse the positive trend in the EUR/GBP currency pair as the upward momentum was stronger.
Meanwhile, the British pound was weak across the market, prevailing on the risk-off market sentiment driven by the discovery of a new coronavirus variant in South Africa.
According to researchers, the variant was much more contagious than previous variants, and they were working on finding its immunity level against vaccines. This uncertainty and fear of spread added to the risk-off market sentiment and had a much greater impact on the British pound than on other currencies, as it is a riskier currency. As a result, the weakening of the pound added to the upward pressure on the EUR/GBP pair on the final day of the week.
Top economic events in next week
There will be no high-level macroeconomic data releases from the UK this week. The ADP Employment Change and the ISM Manufacturing PMI will be featured on the US economic calendar on Wednesday. The US Bureau of Labor Statistics will publish the November jobs report on Friday. A higher-than-expected increase in nonfarm payrolls (NFP) could help the dollar regain its momentum.
Nonetheless, markets will be watching coronavirus reports closely, as well as how Fed policymakers assess the impact on the policy outlook before the Fed enters the blackout period on Saturday, December 4. If FOMC members appear hesitant to accelerate the reduction in asset purchases, the dollar is likely to remain under pressure. UK interest rate futures, on the other hand, were last seen pricing a 55 percent chance of a 15 basis point BoE rate hike in December, down from a 75 percent chance on Thursday.
Sajid Javid, the British Health Secretary, stated that flights from six African nations would be prohibited beginning at 12:00 GMT on Friday. If investors believe that the new coronavirus variety will impact the rate outlook, they should avoid the British pound.
In short, EUR/GBP may struggle to mount a convincing comeback next week, but losses are expected to be limited, allowing for a consolidation phase between major technical levels.
EUR/GBP Technical Levels
Support Resistance
0.8393 0.8432
0.8376 0.8454
0.8353 0.8471
Pivot Point: 0.8415
EUR/GBP trade plan and technical outlook
The EUR/GBP is trading at 0.8478, having completed the 50% Fibonacci retracement. A spike in demand has triggered a rebound in the cross-currency pair. The EUR/GBP pair has formed a bullish candlestick pattern, “Three White Soldiers,” indicative of an uptrend. On the 4-hour timeframe, the EUR/GBP pair has already violated the symmetrical triangle pattern supporting the uptrend in the pair. Technical tools like RSI and MACD are in support of a bullish trend. Alongside, the 50-day EMA (exponential moving average) suggests odds of an upswing in EUR/GBP.
A breakthrough above 0.8480 can create additional room for an upswing until a 61.8% Fibonacci retracement level of 0.8500. A surge in EUR/GBP demand could drive more buying above 0.8500 until the next hurdle at 0.8540. On the flip side, increased selling pressure at the current market price can drive a downtrend until 0.8450 or 0.8430 support.
