EUR/GBP Violates Symmetrical Triangle at 0.85 Despite Weaker UK Final GDP
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- US FDA approved two coronavirus pills made by Pfizer and Merk named Paxlovid and Molnupiravir, respectively, eased Omicron fear.
- UK gross domestic product (GDP) is expected to expand by 1.1 percent in Quarter 3 (July to September) of 2021, down from a 1.3 percent increase previously projected.
- EUR/GBP increased buying pressure at the current market price can drive an uptrend until the 0.8545 or 0.8590 resistance.
On Wednesday, the EUR/GBP pair was trading with a bearish bias at the 0.8489 level amid weaker UK final GDP figures. The day before, the EUR/GBP closed at $0.8501 after hitting a high of $0.8550 and a low of $0.8500. The EUR/GBP reversed its course and dropped on Tuesday, losing most of its previous daily gains. The declining prices of EUR/GBP could be attributed to the prevailing risk-on market sentiment.
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COVID-19 – Coronavirus pills ease Omicron variant fears.
The rising optimism in the market related to the news that the US FDA approved two coronavirus pills made by Pfizer and Merk named Paxlovid and Molnupiravir, respectively, eased fears of the Omicron variant.
The fast-spreading latest coronavirus variant is said to be more harmful than the Delta variant. It can affect already vaccinated and recovered people from coronavirus. However, these concerns faded a little from the market after favorable reports started coming from vaccine developers.
On Tuesday, another company named Moderna said that its laboratory tests suggest that Moderna’s current coronavirus vaccine could protect against the Omicron variant with a booster shot. These reports added to the market’s risk appetite and pushed riskier currencies like the British Pound higher. Furthermore, the relatively risky currency Sterling was rising against the other riskier currency, the Euro, which dragged EUR/GBP down.
EUR/GBP weakens amid spread of Omicron variant
The prevailing weakness of the single currency, the euro, added further to the downside momentum of EUR/GBP. Most of the weakness in the euro is due to the increased spread of the Omicron variant across the continent.
The German economy was under restrictive measures ahead of Christmas amid the rising number of coronavirus cases. Germany was facing the fifth wave of coronavirus, and it dropped consumer confidence over the economy for this month, which ultimately weighed on the euro.
A quick economic outlook
On the data front, at 12:00 GMT, the German GfK Consumer Climate dropped to -6.8 against the anticipated -2.6 and weighed on the single currency Euro. It added further downside pressure on the EUR/GBP currency pair.
At 19:57 GMT, the consumer confidence index for the whole of Europe remained flat at -8. From the British side, at 12:00 GMT, the public sector net borrowing surged to 16.6B against the forecasted 15.4 billion, which weighed on Sterling.
At 16:00 GMT, the CBI realized sales dropped to 8 from the anticipated 24 and weighed on GBP. All the UK’s economic figures were unfavorable to its local currency, triggering a slight sell-off in the EUR/GBP currency pair.
Sterling strengthens despite weaker Final GDP q/q
The UK gross domestic product (GDP) is expected to expand by 1.1 percent in Quarter 3 (July to September) of 2021, down from a 1.3 percent increase previously projected. Because of upward adjustments to growth in 2020, the level of GDP is now 1.5 percent lower than it was pre-coronavirus (COVID-19) in Quarter 4 (Oct to Dec) 2019, down from the previous estimate of 2.1 percent lower.
The annual UK GDP in 2020 is now predicted to have decreased by 9.4 percent, down from a negative 9.7 percent in the first quarter. Following the further relaxing of limitations and reopening of the economy during this period, the most significant contributors to the growth in Quarter 3 of 2021 were hospitality and arts, entertainment, and leisure; production and construction both declined.
In the third quarter of 2021, household spending increased by an upwardly revised 2.7 percent, accounting for the majority of expenditure; underlying inventories fell, likely reflecting some of the recent supply chain problems; and net trade contributed negatively.
The UK’s net borrowing position with the rest of the world fell to -4.3 percent of GDP in Quarter 3 of 2021, down from -2.4 percent of GDP in Quarter 2 (April to June) 2021. Moreover, the household saving ratio fell to 8.6 percent in Quarter 3 of 2021, from 10.7 percent in Quarter 2.
Households’ net loan position in the non-financial account fell to £13.5 billion (2.3 percent of GDP) in Quarter 3 of 2021 from £23.8 billion (4.1 percent of GDP) in Quarter 2; the decline in lending was driven by a 3.3 percent increase in household spending from the previous quarter.
Daily Technical Levels
Support Resistance
0.8484 0.8568
0.8466 0.8568
0.8433 0.8585
Pivot Point: 0.8517
EUR/GBP breaks below symmetrical triangle at 0.8500
The EUR/GBP is trading at 0.8485, having violated the symmetrical triangle pattern at 0.8510. However, for the moment, the support level has flipped to resistance. Therefore, the EUR/GBP pair will likely face a substantial hurdle at the 0.8510 level. In the 4-hour timeframe, the EUR/GBP pair’s significant resistance stays at the 0.8520 level. The formation of candles below 0.8520 indicates weakness in the uptrend; thus, the cross-currency pair can retrace to the 0.8480 level.
A spike in demand beyond 0.8480 may begin a rebound in the cross-currency pair. Technical indicators like RSI and MACD support a solid downtrend in EUR/GBP. The RSI value is held below 50 while the MACD is trading under the 0 level.
On the 2-hour timeframe, the EUR/GBP pair has formed a bearish engulfing pattern, supporting a downtrend. Moreover, the 50-day EMA (exponential moving average) signals the odds of a downswing in EUR/GBP. Thus, the breakout of 0.8480 support can create additional room for a downswing until 0.8445. On the other hand, increased buying pressure at the current market price can drive an uptrend until the 0.8545 or 0.8590 resistance. All the best, and stay tuned for more updates!
