EuroSummit: Key of the day for the EURGBP

22 мар.

Today finds us at the European Summit of the Eurozone Council, a biannual meeting held in Brussels to set the rules for stability, coordination, economic governance and monetary policy in the union. This morning, German business climate data and releases from President Nagel of the German Bundesbank will be released, along with UK retail sales data. This will generate a strong impact on Euro-related currency crosses and German Dax results.

As the Bank of England plans to taper its monetary policies by 0.25% this year starting in June, and lower interest rates to below 4.5% by the end of 2024, this may affect the long-bearish trend of the EURGBP cross.

Looking at the chart, the euro against the British pound has experienced three phases of expansion and contraction in a sideways channel. The key years for this fluctuation were 2018, 2019 and 2022, due in part to the Brexit process in 2020. Since March 2022, where the pound became heavily unbalanced against the euro with the Brexit political meltdown, it has regained value and gained ground in price against the euro after a period of strong currency expansion, which has then corrected with the pandemic period finding itself currently in a sideways period between £0.87673 and £0.85021 per euro from June 2023 to date.

The long-term trend regression channel is relatively broad and higher than expected, suggesting that the euro is at a mid-price in a downtrend. The volume profile checkpoint is at 0.85837, indicating a possible move lower due to the Bank of England's tapering and monetary tightening policies versus the European Central Bank's debt expansionism. This could present a picture in which the euro continues to test lower highs, and attempts to test the bottom of the current sideways range. If the European economy grows and given that it has already tested four times, this could generate a bullish bounce towards the 0.87648 area, but it is necessary to be attentive to the movements of the British government and the ECB decisions to better understand the future direction of the currency. Especially as the Eurozone is planning to maintain Quantitative Easing whenever the Eurozone requires it, and at this point it does not seem to be a pity for the ECB to constantly expand its debt to key Eurozone countries like Germany that have slowed down their exports tremendously. So the sum of European monetary expansion versus British monetary tightening may facilitate a bearish continuation in the long term.

Ion Jauregui - AT Analyst




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