Currency pair of the week: EUR / GBP
The next forex direction of the EUR / GBP pair may depend on who can better handle the next wave of coronavirus.
The European Central Bank (ECB) was slightly less accommodating when it met last week. Central bank members agreed to reduce the pace of bond purchases under the Pandemic Emergency Purchase Program (PEPP), while letting it expire as planned in March 2022. From there it will continue to buy bonds under the current asset purchase program (APP). at a rate of 40 billion euros in the second quarter and 30 billion euros in the third quarter. The ECB will then continue to buy bonds at a rate of 20 billion euros until it is deemed sufficient. However, given that members have left purchases of open-ended bonds (in terms of time), there is still a possibility that the ECB will raise rates by the end of 2022. Moreover, the next wave of coronavirus invading the world could take some time. toll on Europe. European countries are meeting this week to determine how quickly the Omicron variant is spreading in Europe and what restrictions should be taken to prevent hospitals from being overrun, as they were almost 2 years ago. This could create volatility for the euro.
The Bank of England also met last week and surprised the markets with a 15 basis point hike! Recall that at the previous meeting, the BOE surprised the markets by NOT increasing rates. After it became clear that the Omicron variant was going to be a force to be reckoned with in the UK, markets were expecting an unchanged BOE call for December. But it has instead risen on the back of soaring UK inflation, which the central bank expects to exceed to 6% in April. Speaking of flare-ups, the new number of coronavirus cases is on the rise in the UK, with Omicron crawling on Delta, seeking to take the top spot for the most dominant spot. As a result, Prime Minister Boris Johnson activated ‘Plan B’, which includes working from home, wearing masks in public places and covid passports. Additional covid restrictions are possible before Christmas. To top it off, the main Brexit negotiator, David Frost, has just resigned! He was unhappy with covid passports and wrote that the UK “should learn to live with COVID”. More to come on PM Johnson’s covid decisions. What does this mean for the forex pound sterling?
On the daily chart, EUR / GBP is trading in a descending channel since mid-April (blue channel) from a higher pf 0.8719 to 0.8381. However, since September 29, the range of the channel has widened, creating a larger channel (green channel). Horizontal support is just below the 50 day moving average at 0.8480. The above resistance is at the 200 day moving average at 0.8553.
Daily EUR / GBP Chart
On the 4-hour chart, EUR / GBP appears to have crossed the neckline of a head-and-shoulders pattern and is hovering near the 50% Fibonacci retracement level from November 22 highs to December 8 lows, near 0 , 8490. The goal of a Head and Shoulders pattern is the distance between the head and the neckline added to the point where the neckline breaks. In this case, the target is close to 0.8400. However, the pair EUR/GBP must first go through the 50 day moving average and the 61.8% Fibonacci retracement level from the previously mentioned period near 0.8464. Below is the peak of the December 16 low near 0.8453 and the horizontal support at 0.8427. Resistance is at the neck line in the Head and Shoulders figure near 0.8505, previous highs at 0.8528 and the 200 day moving average
EUR / GBP chart 4 hours
It looks like the Bank of England will raise rates faster than the European Central Bank. However, the EUR / GBP pair’s next direction in the forex may depend on who can better contain the next wave of coronavirus. Watch for volatility, especially with lighter volume and a shortened week!
By Joe Perry, Forex.com » Official site
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