EUR/GBP continues its downtrend, reaching two-year lows, without fundamental support for a reversal in sight. The Eurozone economy is likely to be heavily impacted by U.S. trade tariffs amidst already weak growth and political instability in Germany.
Economic Data
The Euro’s depreciation is being driven by concerns over U.S. tariffs on Eurozone exports, weak growth, and political uncertainty in Germany. These fears were further reflected in recent ZEW sentiment data for both the Euro Area and Germany, released on Tuesday.
While European Central Bank (ECB) policymakers may be wary of inflation rising above the 2% target in Germany, these inflationary concerns are unlikely to prevent further monetary easing as the year-end approaches.
Political Landscape
Following Trump’s recent election victory, investors are assessing the potential impacts of proposed trade tariffs. New tariffs could impose a 10-20% levy on Eurozone exports to the U.S., and up to 60% on Chinese goods.
These measures could add strain to the already fragile Eurozone economy, especially given the challenges facing China, marked by a property crisis, declining equities, and a depreciating yuan. This downturn in China, one of Europe’s largest trading partners, could have a significant impact on the Eurozone, particularly on Germany.
In Germany, political uncertainty is adding further pressure. German Chancellor Olaf Scholz has announced his intention to call a vote of confidence on December 16, which could lead to snap elections and potentially significant policy changes in the coming year. This political uncertainty is weighing on risk assets and the Euro.
Interest Rates
Interest rates in the UK are expected to remain higher than in the Eurozone, as the UK’s growth outlook remains relatively positive. This disparity in interest rates could provide additional support to the Pound, while weak economic data in the Eurozone drive additional volatility for the EUR/GBP pair.
Technical Analysis
Source: TradingView
The price remains under bearish control, consistently trading below the pivot line and forming a series of lower highs and lower lows, with additional downward pressure from the 100-day EMA.
After breaking below support at 0.83381 on October 30, the price attempted a pullback but lacked the momentum to reverse the downtrend. It retraced to resistance, which was previously support, before making a low at 0.82700.
If the currency pair fails to break through this resistance, the downtrend may continue. However, if the price manages to breach resistance and gains traction, it could signal a move toward the pivot line. In this case, a break above the recent high of 0.84360 could signal further bullish attempts.
