- EUR/GBP is a little higher on Thursday, but has been rangebound having failed to break below the 200DMA in the mid-0.8900s.
- EUR traders are focused on Thursday’s EU27 Leaders videoconference, where Poland and Hungary are expected to veto the recovery fund and budget.
- GBP is focused on Brexit discussions, which faced a hiccup today after an EU negotiator tested positive for Covid-19.
EUR/GBP trades around 30 pips or 0.3% higher on Thursday, having rejected attempts to advance below the pair’s 200DMA at 0.8940 for a second day in a row.
Euro, Sterling both on tenterhooks over political negotiations
EUR has been largely unresponsive to EU bickering this week over the bloc’s struggles to pass it's recent agreed upon Recovery Fund and 2021-2027 Budget. Though the details of the underlying spending package have all been agreed on by all EU nations and been given the all-clear, the German Presidency’s (with support from other EU nations) attempt to tie access to these funds to additional “rule of law” provisions is causing problems. These provisions ensure that if a country is to be able to access its allocated funds, it must maintain a certain standard of judiciary independence, press freedom etc.
Poland and Hungary, the two nations often most accused of backsliding on democratic values in these areas, have been angered by this and are expected to exercise their right to veto. In practical terms, that means while the EU can still get the Recovery Fund and Budget signed into law, it is not allowed to raise the funding required from capital markets.
With no deal in sight, EUR bulls will be hoping the EU gets its house in order prior to the next EU Council Summit on 10 December.
Meanwhile, across the English Channel, the theme of Brexit negotiations remains the most important for GBP traders. Signals have been mixed today; the two sides have reportedly accelerated talks, and once the big top-level compromises are made by the likes of UK PM Boris Johnson and EU leaders, a finalised deal is reportedly only days away. However, various EU sources have signalled that next Monday is the last date the EU parliament could get a deal placed on its lap and actually get it into law prior to the end of the transition period on the 31st of December. Making that deadline has today been made tougher by the fact that face-to-face negotiations have taken a blow by one of Barnier’s team testing positive for Covid-19 (and Barnier having to go into self-isolation), all while the UK PM is also in self-isolation.
EUR/GBP consolidating within pennant, breakout likely soon
EUR/GBP price action has been consolidating within a pennant structure over the past few days, implying that a breakout could come soon. The lower part of the pennant links the 11, 18 and 19 November lows, while the upper resistance links the 5, 6, 9, 16 and 19 of November.
Given that EUR/GBP has struggled to break below its 200DMA, which is sat at 0.8940 right now, an upside break presents the path of least resistance. A move above highs of the day in the 0.8960s could signal such a break and would open up the door for a test of highs of the week closer to 0.9000, which also coincides with the pair’s 21DMA.
If EUR/GBP can break down below its 200DMA, and below lows of the day around 0.8920, the door is opened for a move towards lows of last week below 0.8800.
EUR/GBP four-hour chart
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