What is EUR/GBP?
EUR/GBP is the currency pair that shows the value of the Euro against the British Pound. The left side of the pair is called the base currency, in this case the EUR, and the right side is called the quote currency, in this case the GBP. This exchange rate tells you how many British Pounds you need to buy one Euro. For example, if the EUR/GBP pair is trading at 0.8700, it means that you need 0.87 Euros to buy one British Pound. So, when the pair is going up in price, the Euro is said to be appreciating or getting stronger and the British Pound is depreciating or getting weaker, and vice versa when the pair is going down in price.
What are the most important EUR/GBP charts to follow?
There are different ways you can display the exchange rate price movements on a chart. The most common ways include a line chart or a bar chart, but the most popular and used one is the candlestick chart. The candlestick chart shows you instantly and in real time where the price has opened, closed and how much up and down it went on any given timeframe.
Let’s say you want to check EUR/GBP price on a daily timeframe. You go to your charting software, select the timeframe and select the candlestick chart (if it’s not set by default). This is what you would see on tradingview.com
Is EUR/GBP a good pair to trade for beginners?
EUR/GBP can be a good pair to trade when you have a monetary policy divergence between the two central banks backing the currencies, the European Central Bank (ECB) for the EUR and the Bank of England (BoE) for the GBP. For example, if the Bank of England is raising interest rates and the ECB is cutting them or not doing anything, then you have a policy divergence and, in such cases, you would see the relative currency pair EUR/GBP depreciate or going down. When there’s no clear divergence between the two countries in their fundamentals, you can generally see this pair ranging. The best times to trade this pair is when one country looks fundamentally better than the other, otherwise you may be caught in the usual choppiness.
What session is best to trade the EUR/GBP?
The best times to trade EUR/GBP is during the European Session, also called the London Session. During this session you have both European and British traders active, and this is also when we see major economic releases or central bank events for both countries. In fact, there were many trading opportunities back in the Brexit saga days when good news made the GBP to rally, and bad news made it to fall hard.
Is the EUR/GBP an important pair?
Currency exchange rates are important for the respective countries. A weak currency can increase exports and thus growth because foreigners will have a stronger currency and more purchasing power leading to them demanding more goods and services from the country that has a weak currency. A too weak currency though can spell trouble because it may increase inflation and the central bank has a mandate of keeping inflation stable, so if it increases too much, the central bank will start to increase interest rates which will strengthen the currency. On the other hand, when the currency is too strong it increases imports and diminishes exports because foreigners will buy less goods and services because their purchasing power will be weaker. This can create a trade deficit (more imports than exports).
Will the EUR/GBP go up or down?
EUR/GBP is a pretty slow pair. It’s been in a 1000 pips range for 6 years. You need to have some fundamental catalysts to see some action in this pair. Right now, after a couple of high volatility weeks caused by UK expansionary fiscal policy fears and the Gilts market sell off, the waters look calmer as the BoE intervened in the bond market and the expansionary fiscal policy announcement was reversed with also the appointment of a new Chancellor. Moreover, the BoE signalled that it would take aggressive actions to fight inflation and get back the market’s credibility in its mandate. The issue is that the ECB is also on track for aggressive monetary policy actions to fight inflation, so there’s kind of an equilibrium. There’s more probability though of seeing the EUR/GBP pair going down in the near future as the recent crisis got averted and the market takes profit on short GBP positions or even bids GBP as BoE goes even more aggressive on their tightening.
How does the energy market and developments in Europe impact the EUR/GBP?
The Russia-Ukraine conflict impacted negatively the European energy markets and energy prices skyrocketed. Although the situation is better than it was months ago, prices are still high, and companies and citizens are getting squeezed hard. There’s growing resentment in many parts of Europe and more and more people are starting to ask Europe to remove sanctions on Russia that are hurting more the European economy rather than the Russian one. The really high inflation that got worse after Russian-Ukrainian conflict is forcing the ECB to tighten monetary policy aggressively, which eventually leads to a really bad recession. These are all negative factors for the EUR, but GBP is not much different with double digit inflation and political instability. The UK is also heading into a bad recession, so there’s not a clear edge in trading EUR/GBP.
How has the Ukrainian war impacted EUR/GBP?
The first reaction was a selloff in the EUR as the market feared some wider escalation. The market though generally looks past such geopolitical events pretty fast when they don’t have a wider impact on the world. The only thing that this conflict brought is more inflation on the energy and food side, so the market started to focus on inflation. This resulted in the market pricing in a more aggressive ECB to come as they need to lower a lot demand to bring it in equilibrium with the low supply. The Euro, after selling off for a week after the Russian invasion of Ukraine, started an uptrend since.
How to trade the EUR/GBP?
The best way to trade currencies in general is to have a fundamental idea for direction, which is generally based on macroeconomics such as central bank’s monetary policy, growth, inflation and so on, and technical analysis for risk management. For example, let’s say that you view the Bank of England as too weak in fighting inflation and the ECB on the other hand becoming aggressive. So, you will want to mainly take long positions. You also need to manage your risk though. Where can you enter in order to have a small risk exposure but a bigger profit potential? You can use technical analysis.
So, you open the EUR/GBP chart and use technical concepts like support and resistance, trendlines, indicators and so on to decide where to open a trade. For example, in the chart below you can see how you could use the upward trendline on the 4-hour timeframe as support with a previous swing level providing extra confluence. So, you could open a long position placing the stop loss below the strong zone of the trendline and swing support level to have a limited and little loss. The possible gain though could have been much bigger as you would have pocketed six times more than you risked in that trade.
This trade opportunity in fact came when the BoE hiked by less than expected as another sign of their weakness and the next day the UK Chancellor Kwarteng announced one of the biggest tax cuts in UK history effectively wanting to use an expansionary fiscal policy in historic high inflation environment. The market of course didn’t take that well and dumped the British Pound.
Where Can I Trade EUR/GBP?
You can trade EUR/GBP or any other Forex pair with a broker. Always choose a good, reputable, and regulated broker to avoid unnecessary problems. When you open a trading account with a broker, you will have to deposit money to be able to trade and then use the broker trading platform to execute your trades. Most retail brokers let you trade on MetaTrader 4 or MetaTrader 5, which are two of the most famous and popular trading platforms among retail traders. Most retail brokers offer CFD trading for Forex, although you can also trade EUR/GBP via other derivatives like futures or options that are more expensive than CFDs.
EUR/GBP Correlation
EUR/GBP is called a cross currency pair and it’s the fusion of EUR/USD and GBP/USD. So, EUR/GBP is both positively correlated with EUR/USD and negatively correlated with GBP/USD. The correlations become stronger depending on what is moving the currencies in their major pairs. If for example GBP/USD went up because of GBP strength due to some positive development in UK, you would most likely see EUR/GBP going down and vice versa if there was some bad development in UK. If GBP/USD went up on USD weakness though, GBP/USD and EUR/USD would both rise almost identically and thus EUR/GBP may just range and do nothing. In the charts below you can see the positive correlation with EUR/USD and negative correlation with GBP/USD.
