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EUR to GBP: Bullish Flag Points to Massive Upside Potential

Brexit GBPUSD
Brexit

The EUR to GBP exchange rate trades in a possible bullish flag ready to pop higher. The cross pair was knocked down from 0.93 recently on renewed Brexit hopes and better than expected UK data. However, the opening of the infringement procedures against the United Kingdom will weigh on the pound as we get closer to the end of the negotiations period.

Euro Keeps a Bullish Tone Despite Lower Inflation

Despite inflation in the Eurozone falling well below the ECB’s tolerance zone, the Euro keeps trading with a bullish tone. The EURGBP cross keeps the bullish bias as long as it remains above the pivotal 0.90 and as long as the ECB does not intensify its dovish verbal intervention.

The Eurozone core HICP, the metric used by the ECB to measure inflation fell to 0.2% last month from 0.4% previous. While bearish, the Euro failed to react mostly because the info was priced in by the market.

The implications are that the market is already priced in the ECB’s increase of the QE program, which means that the EURGBP cross has further room to squeeze higher.

Ongoing Brexit Negotiations Remain the Wild Card

Brexit remains the biggest unknown for the EUR to GBP exchange rate. So far, any news suggesting a deal is possible sent the GBP higher and EURGBP lower. The opposite happened on any negative news regarding a possible deal. In fact, Brexit remains the source of uncertainty on the EURGBP cross. If we consider how the market reacted so far to Brexit news, then the only way the EURGBP flag will break higher is if we have a no-deal announcement in the period ahead.

EURGBP Technical analysis