EURGBP Bearish on Reports of Chancellor Sunak's Planned Tax Cuts Post-Brexit

Summary:

While EURGBP may be unchanged from its opening price today technicals suggest more downside potential ahead. Could post-Brexit plans trigger a move lower?

While EURGBP may be unchanged from its opening price today as it trades at 0.8948, the medium-term technicals of the currency pair suggest more downside potential ahead. Could the UK government’s most recent post-Brexit plans trigger a move lower on EURGBP?

Last week, The Telegraph reported that Chancellor Rishi Sunak announced the government’s plans post-Brexit. According to the report, this includes tax cuts and “freeports” within 12 months of finalizing the UK’s exit from the European Union. This announcement from the government also came after EU Chief Negotiator Michael Barnier noted that there is no benefit for the UK from leaving the bloc.

The details of the Chancellor’s plans have yet to be unveiled. However, if they prove to be significant, we could soon see the pound strengthen because it would imply that there are stimulus measures in place for the UK economy post-Brexit.

For today, BOE Governor Andrew Bailey is scheduled to participate in a panel discussion organized by the BOE and the Federal Reserve Bank of New York. While it is unlikely for him to give a speech on the central bank’s future monetary policy, questions from the audience could force him to make remarks that could affect EURGBP.

Technical Analysis

If you remember the head and shoulders chart pattern I pointed out on EURGBP last week, you will now see that the currency pair has indeed traded lower. What’s next?

As of this writing, EURGBP is testing resistance at the falling trendline from connecting the highs of July 6, July 7, July 9, and July 10. Recently, the currency pair has been consolidating. A strong close below the consolidation around 0.8937 could mean that EURGBP may soon be headed to 0.8867 where it previously bottomed on June 9.

However, you should be wary of an upside break from the consolidation and the trendline at 0.8968. A close above this level could indicate that there may still be bullish momentum in the market and that EURGBP could soon retest its July 6 highs at 0.9066.