EUR/GBP Range Trades But Downside Looms
- Brexit ‘second phase’ talks will likely be more acrimonious, and drawn out, than the first round of discussions.
- Technical pivot may not be enough to keep EUR/GBP from sliding lower.
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UK Prime Minister Theresa May will meet with her cabinet today to discuss the UK’s future trading relationship with the EU, a potentially challenging and divisive set of talks. The UK’s stated position that it is after a bespoke set of trade agreements is very much at odds with the EU whose chief Brexit negotiator Michel Barmier has clearly stated that Britain cannot have a special deal. And one area that is at the heart of the upcoming discussions is financial services, an area that contributed around GBP69 billion to the UK economy, according to data from The CityUK. UK Brexit minister David Davis recently said that the UK plans to treat goods and services as the same, while the EU’s Barnier stated that by leaving the single market, the UK will lose their financial services passport, an essential element in services trade between the UK and the EU.
The daily chart below shows EUR/GBP moving lower after making a multi-month high in late August, and shows the Fibonacci 50% retracement levels at 0.88100 acting as a pivot for the pair at the moment with first support seen at 0.86928 and resistance as 0.89270.
EURGBP Price Chart Daily Timeframe (February 14 – December 19, 2017)
However a look at the weekly chart – using the July2015 low/October 2016 high range – highlights 23.6% Fibonacci resistance at 0.88453 with initial support at 0.84805.
EURGBP Price Chart Weekly Timeframe (December 3, 2012 – December 19, 2017)
IG Client Sentiment data show 52.5% of traders are net-long EUR/GBP with the ratio of traders long to short at 1.1 to 1. The number of traders net-long is 4.8% higher than yesterday and 8.5% higher from last week, while the number of traders net-short is 12.3% lower than yesterday and 13.4% lower from last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBP prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/GBP-bearish contrarian trading bias.
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--- Written by Nick Cawley, Analyst
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.