Frankly speaking, the EUR/GBP pair can be quite volatile and hard to trade over the short term, due to the formidable amount of fundamental data that can sway either currency’s value. However, as recently as the beginning of October, the pair has been showing tell-tale signs that a possible strong upward trend is in its initial stages. This presents a potentially lucrative trading opportunity, whose viability is confirmed using several technical indicators.
Background on the EUR and the GBP
EUR
The Euro is currently the official currency of 16 Eurozone countries, including regional heavyweights such as Germany, France and Italy. The EUR is the second most traded currency globally after the USD, reflecting Europe’s importance and prominence on the stage of global trade. This currency’s value is most affected by policies implemented by the European Central Bank (ECB).
GBP
Though part of the EU, Great Britain still uses the Pound, just like some of its other counterparts. GBP is among the most traded currency pairs in the world. Consequently, the London session is one of the most active during any forex trading day.
Economic Events that Might Affect the Pair
ECB (European Central Bank) policy changes result in the greatest regular impacts to the Euro’s value in relation to other currencies. Other economic events that significantly affect the Euro’s value include announcements on trade balances and GDP for the Eurozone and its major economic powerhouses such as Germany and France, whose economic reports; particularly the trade balances and current accounts can significantly dent or boost the Euro’s value. German unemployment levels are particularly a concern, as the forex market considers it a fair representation of the entire Euro region’s labour market status.
Economic data on the UK such as BOE interest rate changes, changes in unemployment rate, balance of payments and GDP strongly influence GBP’s value in relation to the EUR.
Political Events that Might Affect the Pair
The Russia-Ukraine crisis has had noticeable impacts on the value of the Euro in the recent past, and the effects will continue to be felt for as long as the crisis continues. For instance, Russia’s interruption of natural gas supply to the Eurozone affected the region’s economic prospects and the Euro’s value. Additionally, due to the substantial economic partnerships between major Eurozone players, such as for example, Germany, and Russia, the ongoing crisis is certain to have an influence on the Euro’s value.
As far as GBP is concerned, politics within the country and its territories will most likely affect GBP’s value. For instance, Scotland’s attempt to gain independence caused quite an impact on the Pound’s value in the days leading to the closely-watched vote. Recent successes for the Euro-sceptic party UKIP in Britain are also likely to have an impact on GBP, as will any further upheavals in the run up to the General Election of next year.
The Opportunity
EUR/GBP is currently trading at lows last seen in July 2012. This record low seems like a strong support level for the pair. Furthermore, the 14-period RSI (Relative Strength Index) just went past a value of 50, suggesting that the pair is likely to move up further before finding any resistance due to overbuying.
Additionally, the pair’s price has just touched the 30-day simple moving average, something that has not happened since September 17, when the pair experienced a downward price rally that is currently abating. The 15-day moving average has already starting to rise, signalling the beginning of a possible upward trend.
Possible Risks
Both the GBP and the EUR are prone to unexpected changes in value due to major news events, both economic and political, within the Eurozone, as the region covers such a large number of different nations. Changes in economic prospects of either the EUR or the GBP in the near future might cause the price to go down further, stagnate due to counteractive effects of either currency’s value changes, or even move higher, which is the most expected scenario.
Prepared by IG Australia
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This information has been prepared by IG Markets Limited. ABN 84 099 019 851, AFSL 220440. We provide an execution-only service. The material on this page does not contain (and should not be construed as containing) personal financial or investment advice or other recommendations, or an offer of, or solicitation for, a transaction in any financial instrument, or a record of our trading prices. No representation or warranty is given as to the accuracy or completeness of the information. Consequently any person acting on it does so entirely at his or her own risk. The information provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who view it. IG accepts no responsibility for any use that may be made of the comments and for any consequences that result.
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