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EUR/GBP cup & handle

EUR/GBP – Daily Candlesticks
Source: GKFX / MT4 (XXX, 2020)

EUR/GBP has completed a bullish cup and handle formation. It consisted of a long rounded bottom (the cup) followed by a down-sloping channel (the handle). Price has just broken out from the handle with strong momentum to the topside. 
 

TAKEAWAYS


•    British pound slides under legal threat from EU on new Brexit bill
•    Euro > 1.19 after ECB say it is ‘carefully monitoring’ strong currency
•    Indonesian markets dive 5% with Jakarta set to re-enter lockdown
•    DAY AHEAD: UK GDP, US CPI, Kroger earnings

 

GURU WISDOM


“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” — John Bogle
 

MARKETS


In forex markets Sterling was under pressure again. GBP/USD has lost 800 pips in 8 days and today EUR/GBP broke out to the highest since March (see chart). The euro jumped against the dollar after the ECB meeting but unwound most of those gains when a jump in US producer prices sent traders back into the buck.

It was a volatile day of trading in US stocks. The VIX index is back close to 30. Apple and other tech names were leading the way down with the Nasdaq index the biggest decliner.

The Jakarta composite Index slumped 5% on news the city’s governor would impose a partial lockdown in Jakarta to stop the spread of the coronavirus. The country had its first quarterly economic contraction over 20 years in Q2 and the second lockdown jeopardises its economic recovery.

Gold and silver prices were placid in contrast to the action in stock and FX markets, while oil turned lower with Brent crude back under $40 per barrel.
 

EU legal action


Things got heated again on Thursday in Brexit politics. The UK tabled its ‘internal markets bill’ – which serves the purpose of changing aspects of the deal signed by both the UK and EU in January. Ursula von der Layen, the European Commission president said she was “very concerned” and said it “would break international law”. 

Separately a leaked EU legal opinion said the bloc was considering legal action against the UK for breaching ‘good faith’ agreements in the Withdrawal Agreement. Whether or not the UK passes the new law or the EU chooses to take legal action, investors interpreted the situation as meaning an EU/UK trade deal has become less likely.
 

ECB


The euro jumped on Thursday after the ECB revised higher is 2020 growth estimate to -8% from -8.7%. ECB President Chirstine Lagarde described a ‘strong’ economic rebound inline with previous estimates. The ECB chose to keep policy on hold in light of the higher growth forecasts rather than reacting to the lowest core EZ inflation since 2001 recorded in August. Notably Lagarde said the ECB would “monitor carefully” movements in the exchange rate, saying the euro was discussed in the meeting.
 

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