EURGBP: Here’s Why EUR to GBP rally is gaining momentum today

Published by
Written By: Crispus Nyaga
Share
    Summary:
  • The EUR to GBP pair is gaining momentum because of the worsening UK economy and optimism in the European Union as Merkel becomes leader ahead of CPI

The EUR to GBP (EURGBP) pair is relatively unchanged today as traders reflect on Brexit and the positive news from the European Union. The pair is trading at 0.9137, which is a few pips below the highest point in March 24.

EURGBP reacts to UK GDP data

The biggest mover of the EUR to GBP pair today is the final revision of Q1 GDP data. According to the ONS, the UK economy declined by 2.2% in the first quarter. This number was worse than the previous estimate of minus 2.0%. On the annualised basis, the economy declined by 1.7%, which was worse than the previous decline of 1.6%. The economy had improved by 1.1% in the fourth quarter.

According to the ONS, business investments declined by -0.3% in the first quarter while the current account declined by £21.1 billion.

These numbers paint of a British economy that started to struggle before the peak of the coronavirus pandemic. And going by recent numbers from the UK, there is a possibility that the second quarter will be worse.

Meanwhile, the EURGBP pair is rising because of the fiscal position of the UK. Today, Boris Johnson will launch his ambitious infrastructure spending plan. He is expected to launch new schools, roads, and hospitals. While these projects are good for UK stocks, they also put the country at risk. That is because the developments will require billions of pounds at a time when the debt to GDP ratio has just moved above 100%. Also, the country was downgraded by Fitch a few months ago.

Brexit is also a key reason why the EUR to GBP pair is rising. With the fifth phase of talks ongoing, analysts find it difficult to believe that the two sides will make a deal.

Eurozone progress

The EURGBP pair is rising because of important progress made in Europe. Today, Angela Merkel will become the region’s leader, which is pivotal for the region. Pivotal because she will continue to make the case for the implementation of the recovery fund.

Another major thing is that the ECB is making a truce with Bundesbank on asset purchases. On Sunday, the supreme court of Germany ruled that the German Central Bank was free to continue collaborating with the ECB on these purchases. Later today, we will receive the CPI data from Europe.

Download our Q2 Market Global Market Outlook

EURGBP technical analysis

The EUR to GBP pair has been on an upward trajectory since bottoming at 0.8670 on April 30th. Yesterday, the pair reached 0.9177, its highest level since March 26. The price is now above the 50-day and 100-day exponential moving averages. It is also slightly above the 61.8% Fibonacci retracement level.

Most importantly, it is in an upward trend as evidenced by the pink trendline. Therefore, the pair is likely to continue rising so long as the price is above this line. A move below the 61.8% retracement at 0.9035 will invalidate this prediction.

Written By: Crispus Nyaga

Crispus Nyaga is an analyst and consultant with more than 8 years of experience. He started trading Forex while completing his BSc degree and he has worked for brokers like OctaFX, easyMarkets, & Capital. He has also contributed widely in leading websites like rkdream.com, SeekingAlpha, iNvezz, DailyForex, and BanklessTimes. In 2017, Crispus completed his MBA.

Published by
Written By: Crispus Nyaga