Strategy
Buy 0.8700 for 0.8850 with a stop below 0.8595.
Technical View
Since the start of the year 2021, the EUR/GBP has been on a decline. The decline reached a low of 0.8471. We have since seen a recovery in this pair to 0.8717. We are likely to see a continuation of this rally higher to 0.8850 in the next couple of months ahead. The projected target is the Fibonacci 127% of the rally off the low.
We have also seen both Stochastic and MACD gave bullish divergence warnings as price moved lower. This is a warning of a low in the process of forming. We have seen a rally off the low as a result of this divergence warning. While Stochastic has moved close to the overbought zone, MACD remains bullish and has moved above the zero line. Most importantly, MACD is hinting of a bullish price trend ahead. 20EMA is also hinting of a bullish price trend ahead.
We think price has the potential to move higher to the Fibonacci 127% projection price target at 0.8850.
Fundamental View
The British pound had strengthened earlier in the year against the Euro as the U.K. had a fast and effective vaccination rollout for COVID-19. A faster vaccination rollout is likely to lead to an earlier economic re-opening which is likely to lead to stronger economic growth at the end of the year. Euro zone vaccination was hammered earlier in the year as Pfizer had to cut back planned supply to the union as the company claimed that “fluctuations” triggered by the improvement in the Puurs plant. However, the improvement in this plant would lead to a significant increase in production later in the year.
On April 14, Pfizer would be adding an extra 50 million doses of vaccination, adding up to 250 million doses to be delivered to the European Union. Given the union population size of 746 million, it would mean that one third of its population could be vaccinated by the end of June 2021. This has helped the Euro to recover against the British pound and is likely to continue its recovery going forward.
The British pound had also gained against the Euro, earlier in the year as the Europe zone economy was expected to bounce less than it British counterpart. However since the end of March 2021, German Ifo has come in above expectation. On the 26 April, the German government reportedly raises 2021’s GDP growth expectation from 3% to 3.5%. The British economy is expected to grow at 4% in 2021. This has narrowed the gap between the 2 countries, leading to a recovery in the EUR/GBP exchange rate.