Currency Pair of the Week: EUR/GBP

There are a few fires burning which could affect the volatility of EUR/GBP this week.

Brexit 2

The UK will release employment data this week which could affect the Pound.  The Claimant Count Change for May is expected to be 400,000 vs 856,000 in April.  Although the expectation is more than half the print for April, 400,000 is still an extremely large claimant count number. A higher than expected number could cause volatility in the GBP.

In addition (at more importantly), the Bank of England meets this week at their regularly scheduled Monetary Policy Meeting.  The BOE has already signaled they are willing to increase bond purchases to the tune of an additional 100 billion Pounds to continue to stimulate the economy in its post-corona virus recovery.  Although not expected, the Central Bank has had multiple discussions regarding negative interest rates.  The statement will be monitored carefully to see if the conversation continues.  If negative rates are mentioned, they may be a consideration in the future. The BOE will also have to deal with Aprils terrible data figures.  Recall that last week GDP for April was -20.4%.

The BOE will also have to consider the impact of the ongoing Brexit negotiations.  Talks have led nowhere over the past few weeks, with neither side giving up any ground during the negotiations.  This week, UK PM Johnson and EU lead negotiator von der Leyden will meet.  But rather than an agreement by both parties, the EU will most likely try and extend the negotiations through the summer.  Prime Minister Johnson has been steadfast saying the if there is no substantial progress made by the end of June, that the UK will just ride it out with no agreement and leave at the end of the year.

The EU Council is also meeting this week to presumably agree upon the upon the $500 billion Euros in loans and the $250 billion in grants that were initially brought by Germany and France back in May.  However, countries such as Norway, Sweden, Austria and Denmark are still wary about any grants.  There may be some volatility in the Euro if there are problems with the agreement.

On a 240-minute timeframe, EUR/GBP has been trading in 2 very distinct channels since the pair broke below .8865 in late March.  During the month of April and the first half of May,  the pair traded sideways in a 200-pip range between .8665 and .8865.  On May 15th,  the pair “jumped” higher and has been trading in roughly a 200-pip sideways channel between .8865 and .9055 since then.  Just above is the 50% retracement level from the March 19th highs to the April 30th lows.  The RSI is currently in neutral territory. 

Source: Tradingview, City Index

With the events occurring out the UK and Europe this week, traders need to watch for possible volatility if EUR/GBP.  Above .9084 would be bullish, while bears would enter below .8865.

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