EURGBP: EUR to GBP crawls higher on weak EU data and Brexit deadlock
The EUR to GBP (EURGBP) pair rose slightly as the market reacted to disappointing GDP data from Europe and the ongoing Brexit talks.
EURGBP reacts to weak GDP data
The EU had its worst quarter ever as the economy contracted by more than 3.8%. The sharp contraction was mostly because of the coronavirus pandemic, which led to a shutdown in most countries. The worst-affected countries in the quarter were Spain, Italy, and Portugal, whose economy contracted by 5.2%, 4.7%, and 3.9% respectively. Germany, the biggest economy in the country contracted by 2.2% in the quarter.
Most EU countries make their money from international trade and tourism and in the quarter, these were among the most affected. Indeed, according to Eurostat, the volume of international trade declined by 10% in March even as the trade surplus rose to more than 22 billion euros.
Brexit is a laggard
The EUR to GBP pair also reacted to the ongoing Brexit talks. As I wrote earlier today, the third round of these talks has hit a deadlock, which means that the likelihood of a no-deal Brexit has surged. This is mostly because the UK has insisted that it won’t ask for an extension of the transition period in June.
A no-deal Brexit will be a bad thing for the United Kingdom, which makes most of its money from the European Union. Several countries in the EU will also be affected.
The EURGBP pair is trading at 0.8850, which is slightly higher than this month’s low of 0.8670. The price is also slightly above the 100-day and 50-day exponential moving averages. Also, the current price is slightly below the 50% Fibonacci retracement level. Also, it is along the swing that happened on April 21. Therefore, I expect the pair to continue rising, but bulls must defend the 50% retracement at about 0.8900.
On the flip side, a move below 0.8800 will cancel this thesis. This price is along the 50-day EMA and is also an important psychological level.