Strategy
Buy EUR/GBP at 0.9000. Stop at 0.8860 and profit target at 0.9350
Technical View
Price has been moving in an uptrending channel since the beginning of May 2020. We think price is likely to move within this channel. Currently price is moving closer to the lower trend line of the channel which could offer a good buying opportunity with limited losses if price moves below the lower trend line. On the other hand, if price were to move to the upper trend line, the rewards would be more than double the risk involved. Supporting the limited downside scenario, Stochastic is near to the oversold extreme. MACD is bearish at the moment but is close to the zero line.
On the political side, with European Council meeting coming up on Oct 15-Oct 16 and with Boris Johnson self-imposed dead line of a solution by this council meeting, the risk of a no trade deal Brexit is high, which will favour the Euro and weighs on the British pound.
Fundamental View
British Prime Minister Boris Johnson imposed new restrictions on Monday to tackle a second wave of the coronavirus outbreak after UK experience a rising number of coronavirus cases. This second wave of inflection is registering higher cases than the first wave of inflection; although death rate is much lower. The new lockdown tier system breaks down UK into regions and regions are classified from medium to very high categories according to the spread of the virus. This second wave of inflection is likely to disrupt UK’s economy recovery three months after UK eased lockdown restrictions.
Another factor that weighs down Sterling is ongoing Brexit worries. With talk between UK and the European Union over a trade deal yielding little progress, the worries are that UK has until October 15 to reach agreement over a trade deal or there will be a messy no trade deal Brexit. Although optimism of a deal is high, this optimism may be misplaced. Trade talks could also be derailed by a controversial bill introduced by the UK government that will violate the Brexit deal with EU, who has already launched a legal battle with the UK.