- EUR/GBP hit strong resistance in the form of a medium-term downtrend on Friday and fell to fresh weekly lows under 0.8750.
- Markets remain bullish GBP amid the UK’s strong vaccine rollout.
Thursday’s rally to highs in 0.8790 seems to have been a dead cat bounce. A recent surge in strength into pound sterling has elevated GBP to the top of the G10 leader board on Friday and pressured EUR/GBP back to fresh weekly lows under the 0.8750 mark.
Driving the day
No news or headline seemed behind the recent surge in GBP strength, but in truth, market participants and analysts for the most part remain bullish on the short and medium-term prospects for GBP versus the majority of the rest of its G10 peers, especially the euro. Vaccine optimism continues to underpin sterling, with the country having surpassed 12M vaccine delivered this week. The country aims to vaccinate all adults by the end of May. By contrast, the EU (who in fairness have been doing a better job recently in procuring vaccines) are only aiming to have vaccinated 70% of their adult population by the end of Summer, which EU Commission President von der Leyen defined as 21 September.
This comes in the context of the European Commission’s downgraded economic forecasts earlier in the week, which reflect the bloc’s slower than previously anticipated vaccine rollout. Note that data out of Israel on Friday showed that out of over half a million to have been vaccinated, none caught Covid-19 (an unbelievably positive statistic!!). Thus, if the UK can vaccinate all of its adult before the start of Summer, the country will be able to reopen its economy much more aggressively compared to the EU.
Technical selling appears to be the driving force behind the recent drop; EUR/GBP has been heading lower in recent months within the confines of a bearish trend channel; to the upside, a downtrend linking the 22, 25 and 28 January and 4 February highs has been capping the price action, and seems to have come into play as strong resistance on Friday.
Technically speaking, given how well the pair continues to respect the parameters of its medium-term downwards trend channel, further losses and a move towards 0.8700 over the course of the next few days seems the most likely course of action. In the more immediate term, the bears will be eyeing a test of multi-month lows just under 0.8740 set last Friday. At present, the pair trades lower by about 30 pips or 0.3% on the day.