The European currency this week is a favorite among investors: growth is observed throughout the market. Especially the euro dominates in a pair with the yen, the dollar and the dress coat. The cross-euro/pound pair in this context is also no exception. However, opening long positions for this currency pair is very risky, especially if we consider medium-term or long-term trade.
Despite the empty economic calendar this week, the euro demonstrates strong growth, which is based only on the growing rumors about the "hawkish" intentions of the European Central Bank. Representatives of the ECB have recently been actively hinting at the decision of the regulator to determine the completion date of QE. Such a sharp enough drop in sentiment provoked a strong volatility: after all, just a few weeks ago, traders almost resigned themselves to the fact that the incentive program will be extended for an indefinite period, and finally the question of rate hikes will be delayed indefinitely.
But the fundamental background for the euro has changed very quickly: in Italy, instead of re-elections, the government was formed, in Spain the government passed rather softly from the hands of one pro-European party to the other, and Trump decided to postpone the trade war with the EU. The main macroeconomic indicators of Europe also recovered, confirming the forecasts of officials of the ECB. In other words, at the moment there are almost all the necessary conditions for completing the QE - at least in the context of declaring the date of such a step. These rumors are "heated up" by the relevant comments of the members of the European regulator.
Not surprisingly, such a fundamental picture provided demand for the European currency. For example, when paired with the yen, long positions are justified and have a long-term perspective. Given the latest published macroeconomic indicators, the Japanese regulator is unlikely to toughen its position - and most likely, promises to consider options for easing monetary policy in the future. Therefore, the northern trend EUR/JPY will continue - if the members of the ECB confirm the rumors speculated on the market.
But the situation with the euro/pound pair is somewhat different. Now the British currency "yields" to the domination of the euro, but only because it is awaiting a key vote on the amendments to the Brexit law. The British press has already called the voting day - June 12 - a fateful day that will determine the future relationship between London and Brussels. It should be noted that the parliamentarians will consider 15 amendments to the above law, and all of them can soften the "divorce proceedings" with the EU. In turn, the government of Theresa May insists on a "tough" scenario, until the withdrawal from the Alliance without concluding any deal. These amendments to the law were prepared by the Upper House of the British Parliament (the House of Lords) - and, in fact, they act as a counterweight to the uncompromising position of Theresa May. It is likely that the vote will end on the night of June 13, as the deputies will have to consider and discuss a huge array of information.
One of the key issues is the membership of the UK in the economic communities of the European Union. Theresa May firmly intends to leave the European Economic Area and abandon the single market. The House of Lords (together with Labor), in turn, proposes to preserve the country within the customs union of the Alliance. The market reacts rather sharply to this question, therefore, in case of acceptance of the given amendment, the pound will appear in a zone of strong turbulence.
Here it is worth noting that at the end of June the EU summit will take place, where Britain will have to present a clear and intelligible position regarding future political, legal and economic relations with Brussels. In turn, the "toughness" of this position largely depends on the results of voting on June 12. If the Lower House agrees with the proposals of the House of Lords, the dialogue with Brussels will continue in a slightly different direction.
That is why, speaking of the pound, this fundamental factor has an undisputed advantage over all the others. In addition, the ECB meeting will be held only on Thursday, and a fateful vote in the British Parliament - on Tuesday (the maximum will be delayed until Wednesday). In case of "victory" of pro-European politicians, the pound will receive unconditional support, and the euro will not be able to oppose its argument to this factor. In the future, the situation may change (for example, there is a risk of resignation of Theresa May), but the initial reaction will be in favor of the British currency.
So, let's sum it up. At the moment, euro is dominant in the eur/gbp pair, as traders are confident of the hawkish nature of the ECB on the one hand, and on the other hand are not sure of the positive (for the pound) the voting outcome on June 12. Therefore, long positions can be considered until the end of this week, but they also carry a risk, since any insider information related to the upcoming voting can return a pound of strength. Technically, this cross-pair on the daily chart is on the top line of the Bollinger Bands indicator and above all lines of the Ichimoku Kinko Hyo indicator. This indicates the priority of the upward movement with a target of 0.8920 (the top line of the Bollinger Bands indicator, which coincides with the upper boundary of the Kumo cloud on the weekly chart). But, due to the unstable fundamental background, long positions on the pair look unsafe.