The EUR to GBP (EURGBP) is between a rock and a hard place. The pair extended its rally in overnight trading, reaching a March 25 high of 0.9270. It has risen in the past five consecutive days.
The EURGBP is rising because of the overall strength of the euro after the ECB interest rate decision yesterday. In it, the bank left rates unchanged at historic lows. It also left status quo in place on the pandemic asset purchases – quantitative easing – program.
Analysts believe that the bank will possibly announce a new addition to the 1.35 trillion-euro program in the December meeting. Further, in yesterday’s statement, Lagarde did not commit to intervene in the market and stabilise the euro, which has become relatively strong against key currencies. Furthermore, the bank has limited options to do this.
The EURGBP is also rising because of Brexit-related issues. The eighth round of talks between the two sides yesterday without a deal. With time running out, there is a possibility that the two sides will not reach a deal. The EU has blamed the UK about not compromising on key issues like regulations and fisheries. On the other hand, the UK has blamed the EU for using a backdoor mechanism to force the country to adhere to EU rules.
The situation has been made worse by the recent internal market bill that the UK passed. In a statement yesterday, the EU said that it will sue the UK for breaking international law intentionally. The EU has received support from the US Democratic party. Nancy Pelosi, speaker of the house, has asked the UK to reverse the bill if it wants a free trade agreement with the United States. In a note, analysts at Danske Bank said:
“We expect the Brexit uncertainties to continue weighing on the GBP near-term and cannot rule out a breach of 0.93. That said, we think there is a limit to how high EURGBP can go given it is not the biggest surprise the talks are seemingly close to breaking down.”
EUR to GBP technical chart
The daily chart shows that the EUR to GBP rally accelerated yesterday after the ECB decision and the Brexit issues. It is now trading at 0.9230, which is slightly below the 0.9300 target that Danske analysts pointed out. The price also moved above the important resistance level of 0.9150, which is the highest level on June 27. I suspect that the upward trend will remain as bears attempt to move above the resistance level at 0.9300.
On the flip side, a move below the support at 0.9150 will invalidate this prediction because it will send a sign that there are still bears in the market.
EURGBP Daily Chart