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British Pound Forecast: Breakout Potential Remains for EUR/GBP, GBP/JPY, GBP/USD

British Pound Forecast: Breakout Potential Remains for EUR/GBP, GBP/JPY, GBP/USD

Christopher Vecchio, CFA, Senior Strategist
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Brexit Deal Latest:

  • Still no Brexit deal, but one is expected to be reached very shortly.
  • GBP-crosses have shrugged off any indecent news, suggesting that underlying demand remains strong.
  • Retail trader positioning suggests a mixed bias to the major GBP-crosses.

The End of Brexit Negotiations Nears

There’s still no Brexit deal, but one is expected to be reached very shortly. The UK has signaled that it could simply be a matter of fisheries from the EU’s perspective. Regardless, the situation appears to be on track to avoid the worst case ‘hard Brexit’ scenarios. Stories and comments regarding a potential Scottish independence vote appear to being ignored at present (although in the medium-term, may come back to haunt Sterling).

Brexit News Still Isn’t News

GBP-crosses have shrugged off any indecent news, suggesting that underlying demand remains strong. All three major GBP-crosses (EUR/GBP, GBP/JPY, and GBP/USD) retain potential for further British Pound strength in the near-term, in a ‘buy the rumor, sell the news’ type of environment around a formal Brexit deal.

That is, from this strategist’s point of a view, it seems likely that the British Pound will rally around any deal announcement before profit taking quickly emerges, capping any significant, sustained rally move higher. Other risks linger around the corner, and the coronavirus pandemic’s economic destruction will make Brexit – in any form – all the more difficult.

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GBP/USD Rate Technical Analysis: Daily Chart (November 2019 to November 2020) (Chart 1)

British Pound Forecast: Breakout Potential Remains for EUR/GBP, GBP/JPY, GBP/USD

GBP/USD rates are facing resistance two-fold in the very short-term. First, the monthly high, which comes in at 1.3398. Second, and far more significantly, the descending trendline from the November 2007 and July 2014 highs – which intersects through 1.3398 over the coming days. This is no regular trendline; the November 2007 high is the all-time high. Breaching 1.3398 and sustaining a breakout move higher would suggest a pivotal turn in GBP/USD rates.

Bullish momentum remains firm. GBP/USD rates are above their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order. Daily MACD is rising while above its signal line, while Slow Stochastics are holding in overbought territory. Traders should be on alert for a potential bullish breakout in GBP/USD rates.

IG Client Sentiment Index: GBP/USD Rate Forecast (NOVEMBER 30, 2020) (Chart 2)

British Pound Forecast: Breakout Potential Remains for EUR/GBP, GBP/JPY, GBP/USD

GBP/USD: Retail trader data shows 34.92% of traders are net-long with the ratio of traders short to long at 1.86 to 1. The number of traders net-long is 3.98% higher than yesterday and 4.39% higher from last week, while the number of traders net-short is 15.87% higher than yesterday and 1.57% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.

Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

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GBP/JPY Technical Analysis: Daily Rate Chart (November 2019 to November 2020) (Chart 3)

British Pound Forecast: Breakout Potential Remains for EUR/GBP, GBP/JPY, GBP/USD

GBP/JPY rates have traded sideways through the second half of November, but the consolidation appears to be occurring within the context of a symmetrical triangle dating back to the March coronavirus pandemic low. Resistance has been found around 140.01, the 76.4% Fibonacci retracement of the 2020 high/low range. A bullish piercing candle on the daily chart on Monday, November 30 suggests that topside pressure remains. Similar to GBP/USD rates, traders should be on alert for bullish breakout potential in GBP/JPY rates.

IG Client Sentiment Index: GBP/JPY Rate Forecast (NOVEMBER 30, 2020) (Chart 4)

British Pound Forecast: Breakout Potential Remains for EUR/GBP, GBP/JPY, GBP/USD

GBP/JPY: Retail trader data shows 48.70% of traders are net-long with the ratio of traders short to long at 1.05 to 1. The number of traders net-long is 30.84% higher than yesterday and 25.73% lower from last week, while the number of traders net-short is 2.96% lower than yesterday and 10.90% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/JPY prices may continue to rise.

Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/JPY trading bias.

EUR/GBP Technical Analysis: Daily Rate Chart (November 2019 to November 2020) (Chart 5)

British Pound Forecast: Breakout Potential Remains for EUR/GBP, GBP/JPY, GBP/USD

EUR/GBP rates have been trading sideways through November (like the other GBP-crosses), but it still holds that a bearish break of the triangle is occurring, all while EUR/GBP rates are backing away from the descending trendline off the 2008 and 2016 highs.

Momentum has flattened out over the past week. EUR/GBP rates are enmeshed among their daily 5-, 8-, 13-, and 21-EMA envelope, which is in neither bearish nor bullish sequential order. To this end, daily MACD remains in bearish territory but is trending higher, while Slow Stochastics are rising through their median line.

A break of the November low (0.8861) would offer greater confidence in continued follow through to the downside from the coronavirus pandemic triangle. A move below 0.8861 would also see the August swing low broken, confirming (from this strategist’s perspective) the bearish triangle breakout with an expected ultimate return back to the base near 0.8282.

IG Client Sentiment Index: EUR/GBP Rate Forecast (NOVEMBER 30, 2020) (Chart 6)

British Pound Forecast: Breakout Potential Remains for EUR/GBP, GBP/JPY, GBP/USD

EUR/GBP: Retail trader data shows 45.62% of traders are net-long with the ratio of traders short to long at 1.19 to 1. The number of traders net-long is 11.87% higher than yesterday and 20.61% lower from last week, while the number of traders net-short is 19.19% higher than yesterday and 31.02% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/GBP prices may continue to rise.

Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/GBP-bullish contrarian trading bias.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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