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GBP: Short-Term Weakness May Offer Long-Term Opportunity

GBP: Short-Term Weakness May Offer Long-Term Opportunity

Nick Cawley, Strategist
GBP: Short-Term Weakness May Offer Long-Term Opportunity

Talking Points:

  • The British Pound has given back recent gains against the EUR after the Bank of England’s ‘dovish’ rate hike on Thursday.
  • Any improvement in Brexit negotiations next week may see Sterling regain its recent shine.
  • The EUR remains under-pressure as potential rate hikes continued to be pushed back.

Fundamental Forecast for GBP: Neutral

We remain neutral on GBP at the current juncture but events next week may offer Sterling bulls comfort and a second chance to enter long positions. Against the EUR, JPY and NZD – currencies whose current fundamentals are seen as neutral or weak - any advances in Brexit negotiations, leading to the UK being allowed to open trade discussions with EU members, will see GBP strengthen sharply and put the lows seen in the last 12-14 months firmly in the rear mirror.

And next week, UK Brexit negotiators David Davis and his EU counterpart Michel Barnier will continue talks with both sides stating recently that they are keen for talks to speed up, a sign that both parties may be willing to compromise to avert talks falling off a ‘cliff edge’. And with the clock ticking - to borrow one of Mr. Barnier’s phrases - talks will need to move forward as a hard-Brexit will cause both the UK and EU serious economic damage in the short-term.

EUR/GBP is currently wedged between two Fibonacci retracement levels – 0.89215 and 0.88024 - of the April 17-August 29 range. A break to the downside would see the July 14/17 double low around 0.87445 the next target which would open up a move to 0.86928. On the upside, 0.9022 and 0.9033 remain firmly in play if talks continue to stall.

Chart: EUR/GBP Daily Timeframe (April – November 3, 2017)

GBP: Short-Term Weakness May Offer Long-Term Opportunity

And you can check out our latest Q4 trading forecast for Sterling here.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

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

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