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Brexit Tensions and the Fundamental EUR/GBP Outlook

Aug 12 2019, 06:38 PM (BDT) |

The economic calendar is interesting this week, especially for the GBP, Euro and USD. Today, we'll analyze the situation for EUR/GBP. 

Currently the price is travelling in the area of 0.92600. Today the maximum price reached 0.93243 and this is the highest level since 2010.  The Euro has been on a steady climb against the British Pound since May 6th which is when Theresa May failed to seal a Brexit deal and shortly thereafter resigned. Under the new prime minister, Boris Johnson, fears of a “no deal” Brexit are at its highest. Both, the United Kingdom and the Euro zone will suffer from a harsh divorce. 

Tomorrow morning will be exciting, starting with the German Consumer Price Index release at 6am GMT. The German CPI increased by 0.3% since June. According to the Federal Statistical Office of Germany, the 0.3% CPI increase was due especially to the prices of package holidays (+18.6%) were up on the previous month. While food prices remained nearly unchanged (+0.1%). The prices of energy (total) were down 1.1% month on month. 

Great Britain will then follow with a release on Employment change at 8:30am GMT. To be more specific we'll see a report on Average Earnings, Claimant Count Change, Employment change and Unemployment rate. 

At 9am we can evaluate the German and Euro ZEW Economic Sentiment which gauges the six-month economic outlook.

Wednesday will be packed with early releases as well. 6am will start off with the German GDP – with the forecast slipping into the negative zone at -0.1% vs 0.4% last quarter. 

8:30am we'll see British CPI and PPI report. And at 9am the Euro zone will release their GDP and Industrial production numbers.

Thursday morning at 8am GMT we'll see a release on British Retail Sales. 

Looking at the technical side of things, historically (Monthly TF), we see that the price has reached an area of strong resistance where we saw several reversals in the past. 

On our 4HTF, we see a strong bearish move that cut through the 9EMA, the price is still above the 20EMA and our local trend line. 

We have to pay close attention to the fundamental releases starting from tomorrow. In the meantime, short positions can be considered if the price breaks the 20 EMA and trend line down, with our Fibo correction levels for targets starting with 0.92222 (23.6 %), 0.91590 (38.2 %) and 0.91080 (50%). 

Further movement up is also likely due to Brexit tensions so we can continue trading longs with respect to our trend line and moving averages.

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