Analysis | January 22, 2021

EUR/GBP: outlook and forecast

In terms of EUR/GBP in this article, we will look at the fundamentals, sentiment and key technical levels. We think the probability of a major sell off in the Euro are high due to the following reasons…

Economic Growth and Vaccinations

Both the European and UK economies have been hit hard by the virus but going forward the recovery in the UK is likely to be far quicker than in Euro Zone.

In terms of vaccinations, the UK is leading the world in terms of the number of vaccinations against Iits population which can be seen clearly on the chart below.

The UK also as an advantage over the EU – the UK it’s one single economy not a collection of economies all operating at different speeds why is this important? Because in Euro zone the hit on the weak southern nations is more severe than on say Germany – we have covered in another post that the weak southern nations such as Italy, Spain, Portugal and Greece are unlikely to see growth rates increase to pre pandemic levels this year which will of course drag on overall euro zone growth.

Inflation and Interest Rate Outlook

The UK inflation is higher than in euro zone and the EU faces the prospect of deflation moving forward. The Bank of England won’t be cutting interest rates and the ECB won’t be raising rates so the interest rate differential favours the GBP. Also moving forward the ECB has indicated they will add to stimulus whereas in the UK it’s likely to be cut back.

BREXIT Impact – The GBP Historically Oversold Condition

BREXIT is concluded but the GBP was sold off hard on Brexit news before the Trade deal was signed and remains very oversold historically over the coming months. The GBP is “good value” at current levels and we expect big Institutional money to flow into the GBP over the coming months.

In terms of the technicals below the Daily and Weekly support and resistance levels are the same and give firm levels to key off – for long-term trend followers we think the pair offers good risk to reward.

EUR/GBP WEEKLY CHART: In the last few months we have seen choppy price action but now expect a smoother price action and a major sell off to the downside now BREXIT is concluded – Resistance on the upside is at 0.8900 then 0.900 which is also the 20 ,Week moving average – targets on the downside are 0.8600 then 0.8300.

EUR/GBP DAILY CHART: The GBP is at weekly resistance and is a sell in our view in terms of weakness of the level or if we move up to 0.89400. Stops in our view should be behind the key 0.9000 level.



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