Euro vs pound analysis: Time to panic or buy?

The euro vs pound pair may bounce in the near term

Neon sign / 3D image economic war concept with glowing currencies. pound versus euro                                 
Which currency is likely to attract buyers the most – the pound or the euro? – Photo: Shutterstock
                                

Britain’s strong economic bounce-back may hit a rough patch in the next few quarters due to supply and staff shortages, rising inflation and soaring energy costs. 

While the Bank of England believes inflation pressures are “transitory”, former governor of the Reserve Bank of India and ex-International Monetary Fund (IMF) chief economist and head of research Raghuram Rajan warned that the inflationary surge could be a little more permanent than the central bank expects. 

“Even before the pandemic, the UK typically had higher inflation than the euro area or the US, and there is a worry that it may again get behind,” Rajan told the Telegraph.  

The recovery in the eurozone also seems to be slowing, bogged down by supply issues, inflation pressures and high gas prices. IHS Markit’s final composite Purchasing Managers’ Index (PMI) dropped from 59 in August to 56.2 in September. 

Chris Williamson, chief business economist and executive director at IHS Markit, told Reuters: “Although for now the overall rate of expansion remains relatively solid by historical standards, the economy enters the final quarter of the year on a slowing growth trajectory.” 

While both the UK and the eurozone economies are staring at a slowdown, Ruth Gregory, senior UK economist at Capital Economics, said that the UK gross domestic product (GDP) may not “get back to its pre-virus level until the first quarter of 2022, which would be a quarter after the eurozone economy,” reported The National.

How is the euro vs pound pair expected to perform? Read our EUR vs GBP pair’s technical analysis to find out.

EUR/GBP technical analysis: weekly chart

EUR/GBP technical analysis weekly chart
EUR/GBP technical analysis weekly chart – Credit: Currency.com

The chart of the euro versus pound sterling shows a wide trading range between 0.83 and 0.93. The bulls pushed the price above the 20-week exponential moving average (EMA) last week and tried to start a recovery.

However, the long wick on the week’s Doji candlestick shows that the bears are selling on rallies. The price has turned down and the bears will now try to sink the price below the 0.84365 to 0.84146 support zone.

If they succeed, the pair could slide to the next strong support of 0.83, which has held during previous retests.

The bulls will have to push and sustain the price above the 20-day EMA to signal a stronger recovery to the 50-week simple moving average (SMA) and higher.

EUR/GBP technical analysis: daily chart

EUR/GBP technical analysis daily chart
EUR/GBP technical analysis daily chart – Credit: Currency.com

The euro vs pound pair broke above the resistance line of the descending triangle pattern on 28 September, invalidating the set-up. The failure of a bearish pattern is a bullish sign as it forces sellers to cover their short positions.

However, in this case, the bulls failed to sustain the price above the triangle. This suggests a lack of buyers at higher levels. The pair turned down and slipped back inside the triangle on 30 September.

This may have trapped several aggressive bulls who possibly initiated long positions on a break above the triangle. The bulls tried to push the price back above the triangle on 1 October but failed.

The selling picked up momentum on a break and close below the 50-day SMA. The pair has currently reached the strong support zone of 0.84365 to 0.84146. 

A break and close below this zone will complete the descending triangle setup, which has a target objective of 0.81892. The downsloping 20-day EMA and the relative strength index (RSI) in the negative zone indicate an advantage to bears.

EUR/GBP: buy or sell at these levels?

EUR/GBP technical analysis shows the price has reached a critical support level, which has held on two previous occasions. If the price rebounds off the current level, the pair could rise to the 20-day EMA. Alternatively, the selling could intensify if the support cracks. The pair could then drop to 0.84146. 

The views and opinions expressed in the article are those of the author and do not constitute trading advice. Trading and investing involve substantial risks, and you should do your own research or contact your financial adviser before arriving at a decision. As always, never invest more than you can afford to lose and remember that stocks can go up or down.

Euro / British Pound
Daily change
0.8364
Low: 0.83128
High: 0.83743

Read more: Bitcoin price analysis 4 October:  Will $50k be conquered? 

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