Potential GBP Vulnerability Ahead of EU-UK Talks

  


EUR/GBP Analysis:

  • Eurozone Q1 quarterly GDP better than expected but not enough to prevent a double dip recession in the economic zone
  • Talks between EU and UK representatives to be held tomorrow in London regarding Northern Ireland Protocol
  • Any potential retaliation by the EU in response to supposed flouting of post-Brexit obligations may have a negative effect on the Pound Sterling

Eurozone Economic Woes Continue

The fact that the Eurozone entered a double dip recession has been known for some time now, however, the revised quarter on quarter figure for Q1 2021 showed less of a contraction (-0.3%) than was expected (-0.6%).

The decline was led by the Eurozone’s main economic powerhouses, Germany, France, Spain and the Netherlands as they witnessed their respective economies contracting once more.

DFX economic calendar

For all market-moving data releases and events see the DailyFX Economic Calendar

EU-UK Talks over Northern Ireland Protocol set for Tomorrow

There have been numerous reports in the lead up to the formal discussions that continue to shift the blame as far as the handling of the post-Brexit obligations surrounding Northern Ireland is concerned.

Brexit minister Lord Frost has communicated frustrations over the supposed inflexibility of the EU on matters concerning Northern Ireland, while Ireland’s Foreign Minister was quoted as saying, “EU have consistently proposed new solutions”.

EUR/GBP: Key Technical Levels

The daily chart shows how the pair has traded largely within a channel (0.8540 – 0.8730) since the end of February this year as volume seems to creep lower and lower, shown by the lower ATR reading. There has been a strong rejection off the 0.8470 zone resulting in continued trading within the channel, with the 76.4% Fib level (drawn from the Feb 2020 low to March 200 high) holding as support.

EUR/GBP Daily Chart

EUR/GBP Daily Chart

Chart prepared by Richard Snow, IG

Be prepared for any significant developments that may come from the EU-UK talks on Wednesday

Taking a closer look at the 4-hour chart, price action currently looks to test the 0.8615 level which has acted as resistance since mid-April. A break above this level and a hold above the shorter-term descending trendline could see the 0.8645 level come into play as a significant level of resistance. However, a move above the May high (0.8650) is required for the possibility of a larger, more sustained bullish run.

However, a rejection of the 0.8615 level could see the pair continue to trade between the smaller zone between 0.8615 and 0.8580, with a potential move lower, highlighting the 76.4% Fib as support.

EUR/GBP 4-Hour Chart

EUR/GBP 4 hour chart

Chart prepared by Richard Snow, IG

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

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