Technical Analysis

Euro crashes against sterling as BOE and ECB divergence widens

22-Nov-2021 11:23:43

The euro declined on Monday morning as investors remained concerned about rising covid-19 cases in Europe. Recent data show that the number of cases has jumped in several countries like Germany, Netherlands, and Austria. Germany has already threatened to announce more restrictions. Austria also started a controversial new lockdown as thousands protested in Vienna over the weekend. The euro has also declined as investors remain concerned about the divergence between the ECB and the Fed. In a statement on Friday, Christine Lagarde reiterated that the bank will not hike interest rates in 2022.

Global stocks were relatively unchanged in the morning session as concerns about the fourth wave of the pandemic in Europe continued. Stocks also declined as the rising tensions between Russia and Ukraine rose. In a statement during the weekend, Ukraine asked the US for more military help as the likelihood of an invasion rose. At the same time, France warned about grave consequences if Russia manages to invade the country. In the past few weeks, Russia has increased its presence near its border with Ukraine. Stocks also reacted to the rising dealmaking. During the weekend, KKR announced that it would acquire Telecom Italia. The deal is being valued at about 7.5 billion euros. 

The economic calendar will have minimal events today. Markit, the global data company, will publish the latest flash manufacturing and services PMI data from the UK. These numbers will come two days after the ONS published strong UK retail sales data. Meanwhile, in the US, the main data to watch will be existing home sales numbers. Analysts expect the data to show that its existing home sales data rose to more than 6.2 million in October. Other key events to watch this week will be the US new home sales, durable goods orders, and GDP numbers.

GBPUSD
The GBPUSD pair has been relatively unchanged in the past few days. This is unlike other currency pairs like the EURUSD that have dropped sharply. This performance is mostly because of the strong data from the UK and US. The pair is trading at 1.3445, which is a few points below last week’s high of 1.3512. It has also formed a bearish flag pattern. It is also slightly below the 25-day moving average. Therefore, the pair will likely break out lower this week.

EURUSD
The EURUSD has fallen sharply recently. This month alone, it has dropped by more than 3.5%. The pair has also moved below the 25-day moving average. It has also crossed the important support level at 1.1300. Most importantly, it is below the Ichimoku cloud. Therefore, the pair will likely keep falling as bears target the key support at 1.1200.

EURGBP
The EURGBP pair has been in a major sell-off lately. It is currently hovering near its lowest level in 21 months. As a result, the Relative Strength Index (RSI) has moved below the 25-day moving average. It has also dropped below the important support at 0.8400. Therefore, like the EURUSD pair, it will likely continue falling as the divergence between the ECB and BOE widens.

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