In fact, the exact opposite happened, with market participants wondering if this is not just another case of buy the rumor sell the fact. Since the start of the trading week, one of the most active currency pairs was the EUR to GBP, as the exchange rate traded with a dovish tone.
A couple of factors are worth mentioning as drivers in the bearish developments seen on the EURGBP cross pair. To start with, the indecision seen at the EU Summit is not something that signals faith in a unified European Union and its ability to reach a consensus fast. After all, the marathon summit just ended today after days and nights of ongoing negotiations.
In the end, the Southern states got (almost) what they wanted (i.e., a substantial amount in grants and the rest loans) and the Northern ones saved face, having something to explain to their electors back home. For instance, Spain is getting a total allocation of EUR140 billion, out of which EUR72 billion will be paid in grants. More or less, the same proportion applies to funds to be distributed to other countries, albeit the size differs depending on the economic impact of the coronavirus crisis.
The hesitation, however, and the argument about money and how to distribute them is not something financial markets want to see. It is not only the EUR to GBP that did not buy into the outcome, but other Euro pairs (e.g., EURAUD) trade with a bearish tone too.
Another reason sending the EUR to GBP exchange rate lower came from Oxford University. The preliminary results of a COVID-19 vaccine sent the GBP higher across the FX dashboard.
EURGBP Technical Outlook
The technical picture speaks a thousand words. The EURGBP cross pair formed a rising wedge visible on the lower timeframes on its recent move above the psychological 0.90 level.
The third marginal high posted right at this week’s opening completed a second bearish divergence before the price breaking the lower edge of the pattern.
Moving forward, traders should eye the rising wedge’s full retracement, while the highs in the previous Asian session must hold. It means that a stop-loss in the 0.9050-0.9070 area should be enough for a take profit to 0.8930 full wedge retracement. In the case of a spike higher above the stop-loss area, the focus shifts to the lower edge of the pattern. It is usually retraced by the price action and retested. In that case, going short with the same target but with a stop-loss at the top of the wedge offers an even better risk-reward ratio.
EUR to GBP Forecast