Date: 20 May 2019

Volatility in the euro and British pound currencies are set to pick-up this week as the European elections commence this Thursday. The results of the EU elections have far-reaching implications for both Europe and the United Kingdom, at a time when conventional political parties are losing ground to populist movements.

The British pound is likely to come under fire if the newly created Brexit party steals votes away from the Conservative and Labour parties as widely expected. Investors may become nervous that the Brexit party could then become a new dominant force in UK politics, which may eventually bring down the established political hierarchy inside UK parliament.

Traders and investors will also be monitoring closely how the Labour party polls in the European elections, due to the perceived negative economic consequences to the UK economy if a socialist government enters into downing street. Sterling has already started to take a turn for worst as cross-party talks ended in failure last week, bringing the prospect of an upcoming general election ever closer.

Euro currency volatility is also on the cards this week, as the EU elections could bring a number of new populist parties into the European parliament. Another key focus for financial markets when looking at the EU elections is likely to be the polling amongst core European nations, such as Germany, France, Italy, and Spain, where voters appear to have lost confidence in the established order and may for vote for alternative candidates.

Aside from the EU elections, both the eurozone and United Kingdom economies have high-impacting data releases this week, with German first-quarter GDP and preliminary May PMI manufacturing data headlining the economic calendar. The data takes on extra significance as the European Central Bank’s June policy meeting is fast approaching, where the governing council will update its growth projections.

The EUR/GBP pair is set to have one of its busiest trading weeks of the year, especially given the amount of cross-currency volatility happening this week. The traditionally slow-moving cross-pair has been on the rise lately, with the British pound suffering its worst losing streak against the euro in fifteen years.

 

 EUR/GBP Daily Mountain Chart | Source: ActivTrader

EUR/GBP Daily Mountain Chart | Source: ActivTrader

 

The EUR/GBP pair remains technically bullish while trading above the 0.8640 level, key weekly resistance is currently located at the 0.8845 and 0.8980 levels. Looking to the downside, key support for the EUR/GBP pair is found at the 0.8550 and 0.8410 levels, with extended weekly support at the 0.8300 level.

 

Written by Nathan Batchelor, External Analyst, ActivTrades

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