Disagreements emerged between the EU and the UK over Brexit conditions.
The British government estimated that the rate of British economic growth will go down by 5% because of Brexit if a trade deal is signed with the European Union. In case of no agreement, the slowdown in the growth rates may be 8%. Will EUR/GBP quotes advance?
Their increase means a strengthening of the euro against the British pound. The Best for Britain Group calculated that if Brexit occurs without a free trade deal, the losses of the British economy may amount to $348 bln in 15 years. If the deal is signed, the losses will be less amounting to $181 bln. If the UK leaves the EU but retains membership in the Customs Union and the single market of the EU, its financial losses will be as low as possible and amount to $72 bln. Recall, that earlier, the British authorities announced that there would not be a second referendum on Brexit. The EU representative at Brexit negotiations said last week that the parties have serious inconsistencies in the conditions of the 2-year transition period. Because of this, the signing of the relevant deal scheduled for the next month may be aborted. On Friday, British Prime Minister Theresa May will meet German Chancellor Angela Merkel to discuss these issues. An additional negative for the pound may be an increase in the UK foreign trade deficit in December.
On the daily time frame, EUR/GBP: D1 came out of the falling range and has been rising. The further price increase is possible in case of the publication of positive economic data in the eurozone and negative ones in Great Britain, as well as in case a Brexit transition period deal is not signed.
- The Parabolic indicator gives a bullish signal.
- The Bollinger® bands have widened, which means higher volatility. They are tilted upwards.
- The RSI indicator is above 50. No divergence.
- The MACD indicator gives a bullish signal.
The bullish momentum may develop in case EUR/GBP exceeds the last fractal high at 0.891. This level may serve as an entry point. The initial stop loss may be placed below the two last fractal lows, the lower Bollinger band and the Parabolic signal at 0.871. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the break-even point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level at 0.871 without reaching the order at 0.891, we recommend cancelling the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis
Position - Buy
Buy stop - above 0,891
Stop loss - below 0,871