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EUR/GBP - Clash of the Titans

The EUR/GBP pair has always been known as quite a volatile asset as both currencies continuously battle with each other to get ahead. The fact that both regions have each other and China as their main trade partners, adds to the volatility of the asset.

The Euro has increased in value during today’s first two sessions and is, so far, forming its third consecutive bullish daily candlestick. The Euro has been in an upward trend against the Pound since April 22nd, and has increased in value by 2.90%. However, we have seen some strong declines during this period, such as on May 9th. Let's take a closer look at what is driving its price.

Today’s market activity remains high, given that the end of the week is full of economic releases from Europe and the US. This also has an effect on other currencies. Simultaneously, the GBP is forced to trade under the influence of external factors as the UK markets are closed today due to the Platinum Jubilee of the Queen. Support for the single currency was provided by European statistics on consumer inflation.

Today, investors will focus on multiple releases regarding the level of business activity in the Eurozone from S&P Global, as well as April statistics on Retail Sales. Current forecasts suggest that business activity will remain at about the same levels as before, while Retail Sales statistics may turn out to be slightly higher than previous months. The index is expected to grow by 0.3%.

In general, we have seen inflation continue to grow at a faster pace in the EU, surpassing the Central Bank’s expectations. In the latest meeting the President of the European Central Bank advised that the regulator will look to increase interest rates in two stages over the next few months. However, economists now believe that the ECB (European Central Bank) will need to introduce more and bigger hikes in order to keep inflation under control. These developments have recently supported the Euro against most currencies.

One of the biggest drivers for the currency pair is the risk of recession in the UK. A recession is actually a possibility within the EU as well, however, it is being addressed in a much harsher manner in the UK. Economic releases from the UK have also indicated this possibility. For example, the May data on the index for UK business activity in the manufacturing sector recorded its decline to 54.6 points, which is the lowest level since January last year. Economists believe that this is due to the worsening financial situation of British households. This can result in individuals looking to hold onto their capital and refrain from spending. Consequently, this can reduce economic activity. EURGBP - 03.06.2022 - 2.jpg

In terms of the price movement, we can see that the asset is steadily increasing within a standard Elliot Wave Scenario with consecutive higher highs and lows. Having said that, the price has yet to cross previous levels seen in late May, and is increasing at a slower pace. It is important for traders to keep up to date with the momentum as the bullish movement may see another spike or even a sudden decline. This will also depend on economic events today and over the next week.

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