EUR/GBP sellers keep pair below 21DMA in mid-0.8600s
- EUR/GBP has been choppy on Tuesday, swinging all the way from under 0.8600 to 0.8640 and back again.
- The 21DMA in the 0.8620s seemed to provide crucial resistance.
- Concerns regarding the Eurozone vaccine rollout likely encouraged bears to sell the early session rally.
Its been a very choppy session for EUR/GBP; by the start of Tuesday’s European session, the pair had surged from start of Asia Pacific session levels in the 0.8580s to fresh more than one week highs at 0.8640, above the pair’s 21-day moving average (DMA) at 0.8626. However, as swiftly as the rally took place, EUR/GBP has slumped back to the downside and now trades in the 0.8560s and at session lows. At present, the pair trades modestly lower by about 0.1%.
With technical selling at the 21DMA having seemingly won out (the 21DMA has acted as solid resistance and been substantially broken above so far in 2021) and the bears now back in control, traders will be looking to see if EUR/GBP can test last week’s lows in the 0.8550s. A break of these lows would open up the prospect of a break of lows set at the end of last month of just under 0.8540, below which the pair would be back at multi-month lows.
Driving the day
Early strength in the euro appears to have been exacerbated by a stronger than anticipated German ZEW survey. To summarise; German ZEW Economic Sentiment rose to 76.6 in March from 71.2 in February, a larger jump than the expected rise to 74.0. Similarly, Current Conditions saw a larger than expected jump, rising to -61 from -67.2, though this is still well below pre-pandemic levels, which is unsurprising given Germany has been stuck in varying degrees of lockdown so far this year. ZEW commented that while the second lockdown has paused the recovery, their data does not suggest there will be as drastic a drop in GDP in Q1 2021 as was experienced in the Q2 2020 lockdown.
At the same time during early European trade, GBP was under pressure, though there was no specific news or themes driving the weakness. But the tables have since turned, with GBP picking up and EUR coming off, hence the turnaround in EUR/GBP.
Long-term EUR/GBP bears likely sued Tuesday’s rally as an opportunity to add to shorts and it looks as though that trade is already paying off. Market commentators are attributing news of further disruption to the Eurozone’s vaccine rollout as a negative for the pair; most EU nations have now halted their rollouts of the AstraZeneca vaccine amid concerns that it might be linked to higher cases of severe blood clotting.
However, the WHO, UK health authorities and even the central EU health authority (the European Medicines Agency or EMA) have all come out to urge that the vaccine is in fact safe and that the links to blood clots are nothing more than spurious correlation at best and anti-vaccine fearmongering at worst. The EMA is conducting an investigation and will release the results on Thursday, but is expected to give the vaccine the all-clear.
As to why this is bearish for EUR/GBP; the EU’s vaccine rollout already severely lags that of the UK and with Covid-19 infections on the rise on the mainland, the Europeans need to accelerate their vaccine rollout more than ever if they want to reopen their economies over the summer. Vaccine hesitancy, particularly versus the AstraZeneca vaccine, has slowed the rollout and there have been numerous reports in recent weeks of AstraZeneca vaccines just sitting in storage. The latest moves by EU countries are likely to further damage confidence in the safety of the vaccine, further slowing the bloc’s rollout and putting its economic recovery ever further back behind the UK’s (whose vaccine rollout is set to accelerate in the coming weeks).
Looking ahead, Thursday is the next big day of market-moving events for EUR/GBP, with the Bank of England releasing the results of their latest monetary policy decision as well as updated economic forecasts. Meanwhile, ECB President Christine Lagarde will also be speaking.