EUR/GBP taking on the highs as GBP outlook troubled
- EUR/GBP bulls in charge, taking on supply territories with robustness.
- GBP outlook is not favourable for deeper corrections in the cross.
EUR/GBP is back to test the day's highs and an area of supply which has capped July rallies. At the time of writing, EUR/GBP is trading at 0.9110 between a range of 0.9075 and 0.9124.
A reappearance of Brexit concerns has weighed on the pound this month to date and the euro has been given a boost on the agreed rescue package for the eurozone.
After one of the longest summits in EU history, a five-day marathon, a €750 billion package to fund Europe’s recovery from COVID-19 was finally agreed.
The deal is part of a EUR1.8 trillion seven-year budget. It will include both loans and grants to member states.
However, the markets have given a huge sigh of relief, not only for there being a plausible expectation that the deal is sufficient to combat the impact for at least the first wave of the virus but also, the agreement ha managed to see improved coordination of EU officials.
The deal marks a new step in sharing the financial burden, with countries agreeing to issue bonds together to fund the relief efforts.
The fractures between member states had cast a dark cloud over the feasibility of the European Union which had been weighing on the outlook for the future of the euro and whether it could even survive.
The pound bid on the back of dollar weakness
Meanwhile, the pound has managed to score a bid on the back of dollar weakness (and lower real US yield prospects). However, rallies may not be sustainable, or at least not as rigid as compared to that of the euro's.
Hopes of a Brexit deal with the UK are wearing thin, which tends to pressure the pound more than the euro.
Prospects of any positive traction for these summer months is unlikely and a high degree of uncertainty prevails.
In addition, the following all go towards a negative outlook for the pound:
- Increased tensions with China,
- Continued criticism of its handling of the COVID-19 crisis,
- Increased talk of another push potential push by Scotland towards independence,
- Lingering fears of negative interest rates,
- A near term trade deal with the US fading away over the horizon.
At this juncture, the only real hope bulls have lies with the recent pessimism over the US dollar and economic recovery.
The virus spread of the virus in the US and a deteriorating demand bias in the offshore EUR/USD market, for now at least, could help to support cable, but not nessasrily EUR/GBP.
EUR/GBP levels