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EUR to GBP Surges as Forex Traders Become Jittery on Brexit and Ahead of BOE


The pound is weaker across its major counterparts as we start today’s European session. The EUR to GBP exchange rate rose close to 40 pips from its Asian session lows. As of this writing, the currency par is trading around 0.8470.

The Risk of a Disorderly Brexit

The rise in EUR to GBP may have been triggered by earlier reports from the Federation of German Industries (BDI) saying that a disorderly Brexit lies ahead of the UK. Remember that the UK is due to begin its divorce from the EU later this week. According to German officials, UK Prime Minister Johnson’s commitment to finish negotiations by end of 2020 makes it unlikely for the two parties to come up with sound trade agreements.

Will the BoE Cut Rates?

It also does not help that investors have grown jittery ahead of the BOE rate decision. Latest data from the UK has been mixed with PMIs and employment topping expectations while retail sales disappointing forecasts. Consequently, the chances of a rate cut from the central bank on Thursday is split at 50-50.

With these risks, the pound has been left vulnerable to market sentiment. Risk aversion has once again blanketed today’s trading on news that the coronavirus continues to spread.

Read our Best Trading Ideas for 2020.

EUR to GBP Outlook

On the hourly chart of the EUR to GBP exchange rate, we can see that the currency pair has recently made higher lows following a series of lower lows. Consequently, an inverse head and shoulders chart pattern has materialized. In forex trading, this is considered as a bullish reversal signal. Buyers will need to push past resistance at the falling trend line (from connecting the highs of January 14 and January 20) and the 200 SMA around 0.8480. A bullish close above this price could mean that the EUR to GBP exchange rate will soon rally to 0.8550.

On the other hand, reversal candlesticks around 0.8480 could mean that there are still enough sellers in the market. The initial support level is around 0.8440 where the neckline and the 100 SMA are. If support at this level does not hold, the next floor could be at 0.8400 where EURGBP bottomed yesterday and last week.

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