EUR Gains on EU Commission’s Proposal, GBP Slides on Brexit Impasse

Investors’ Morale Stays Relatively Upbeat

The US dollar traded higher against the majority of the other G10 currencies. It gained versus AUD, GBP, NZD, JPY and CHF in that order, while it underperformed against SEK, EUR and NOK. The greenback was found virtually unchanged against CAD.

EUR Gains on EU Commission’s Rescue Plan

Back to the currencies, apart from the EU shares, the euro was also benefited by the European Commission’s announcement over a EUR 750bn rescue plan. Under the proposal, the Commission would borrow funds from the market and then allocate 500bn in grands and 250bn in loans. Much of the money will be distributed to Italy and Spain, which are the members affected the most by the coronavirus spreading.

EUR/GBP — Technical Outlook

Yesterday, EUR/GBP bounced off from its sort-term tentative upside support line taken from the low of May 11 th. The pair got close to the current highest point of May, near the 0.9000 barrier, but eventually failed to test it. That said, given that the rate is still very close to that barrier today, the bulls may attempt to break it. But until that happens, we will take a cautiously-bullish approach.

Brexit Impasse and Negative-rate Talks Weigh on GBP

Passing the ball to the pound, the British currency was the second loser in line after the UK told the EU that they need to break an impasse in negotiations in order to get closer to a Brexit trade deal by the end of the year, and that an agreement on fisheries may not be ready by July. On top of that, the UK Chief Brexit negotiator David Frost reiterated the UK’s position that the transition period should not be extended beyond December. Further comments on negative interest rates in the UK by the BoE Governor may have also weighed on the pound. Governor Bailey said that the Bank is willing to do more in order to combat the virus fallout and that it’s the right time for them to consider cutting rates. Just for the record, the BoE’s benchmark interest rate now stands at 0.10%.

GBP/CAD — Technical Outlook

GBP/CAD broke below its key support area, at 1.6970, which kept holding the rate from sliding further since it first tested that area on May 21 st. The pair took a beating and ended up testing the 1.6845 zone, which currently continues to provide decent support. The rate may easily go for a small rebound soon, however, let’s not forget that the pair remains below a short-term tentative downside resistance line taken from the high of May 1 stand any advance closer to that line, may be seen as a temporary correction before another leg of selling, especially if that line stays intact.

As for Today’s Events

During the European morning, Germany’s preliminary CPIs for May are coming out. Expectations are for both the CPI and HICP yoy rates to have declined to +0.6% and +0.5% from +0.9% and +0.8% respectively. Something like that could raise speculation that inflation in the Eurozone as a whole, the rates of which are expected to be released on Friday, may also slow further.

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