EUR / GBP continues its strong recovery, now flirting with the 50 DMA at 0.8645

• The strong rally in EUR / GBP has continued for the second day, with the pair now flirting with its 50 DMA at 0.8645.
• EUR / GBP is now in its best week since early September 2020 and is up about 1.8%.

The EUR/GBP it continued to correct sharply higher on Wednesday and managed to record highs at its highest level in more than a month above 0.8650 and above its 50-day moving average at 0.8647. Since then, the pair has dropped a bit and is trading at 0.8645. On the day, the EUR / GBP has risen another 0.7% or more than 60 pips. On the week, the pair has risen approximately 0.8% or more than 150 pips. That means the exchange rate is set for its best week since early September 2020, a week when the British pound was rocked by fears of a no-deal Brexit.

Performance of the day

Unlike in early September, when the UK government’s decision to introduce legislation that would violate the EU Withdrawal Agreement signed in October 2019 raised fears of a no-deal end of the transition period between the UK. and the EU will accelerate, there is very little path of fundamental explanation for the recent gains in EUR / GBP. The big picture of a UK economy that is controlling the virus, moving forward with the launch of the vaccine and heading towards a rapid economic reopening in the face of an EU that is struggling to contain the third wave of infections, is behind schedule with the launch of the vaccine and will probably remain locked up for some time. This, long-term EUR / GBP bears continue to argue, remains negative in the long term for the pair.

Therefore, market commentators are attributing this week’s strong rally to a technical correction / profit taking / position adjustment in the wake of a prolonged selloff in the pair. In fact, between the beginning of the year and this Monday (when the pair hit multi-month lows below 0.8450), the EUR / GBP had fallen around 5.5%. After the recent pullback to the upside, the decline since the beginning of the year is still around 3.5%. Some market strategists have been arguing that relatively higher levels of positivity regarding the UK’s short-term economic outlook compared to the EU are now in price and have been for some time, rather than the recent price action suggests that this is probably the case. If the EUR / GBP continues to decline, more good news from the UK and more bad news from the EU are likely to be needed.

Technical levels