Last week we saw Sterling begin to weaken further- predominantly against the Euro as exchange rates entered the 1.09 area on Friday- this was mainly due to optimism about the EU recovery fund being sorted this weekend. At time of writing (Sunday afternoon)- the EU doesn’t look any closer to an agreement on this- and unless it goes to the wire tonight and a deal is done, the feeling out there is we will enter the week without any agreement from the EU, and the Euro may begin to weaken- this, of course, would help boost GBPEUR and soften EURUSD exchange rates.
Even if we do get some short term gains on GBPEUR, unfortunately, my outlook for the Pound at the moment is still bearish- the UK economy has suffered a great deal, and we are still yet to see the real effects on unemployment etc, which we won’t see until October/November time- and I am not entirely confident in the UK’s recovery either at this point, COVID doesn’t seem to be under control and localised lockdowns will definitely have an effect on the UK economy, especially while businesses are trying to get back off the ground after a tough few months.
I think we are going to see GBPEUR test 1.0820 (.9240) then 1.0720 (.9328) and GBPUSD 1.2430 then 1.2320, this is due to the headwinds being created by Brexit and the fallout from Covid19, the market has tried to push Sterling higher a few times, each time however it runs out of steam earlier than the previous attempt, this is also a Bearish signal, the risk is all to the downside, we might see the odd sharp rally but this will be a one-off order being executed by your BPs of the world repatriating overseas revenue, the relative strength index(RSI) shows sterling has plenty of room to the downside before being oversold.
A short update today as I am waiting for the EU decision to get an idea of real direction on the market- I will follow up later in the week.