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EUR/GBP Likely to Fall as Juncker Warns Over EU Unity

EUR/GBP Likely to Fall as Juncker Warns Over EU Unity

2018-02-01 10:00:00
Nick Cawley, Analyst
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EUR and GBP Talking Points

- Juncker warns that corporations will pressure governments to accept some UK proposals.

- A hawkish UK ‘Super Thursday’ next week may send EUR/GBP tumbling through support.

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EC President Juncker Fears EU Schisms over Brexit Trade Talks

The unity of the European Union is likely to be called into question in the months ahead, according to European Commission President Jean-Claude Juncker, as trade talks loom. Speaking at an event in Spain on Wednesday, Juncker said that the first round of Brexit talks were ‘the easiest’ and that the upcoming post-Brexit trade talks could see nations split. He warns that corporations were likely to put pressure on their own governments to agree with specific UK trade proposals and that ‘in the end, we’ll have several extras, several exceptions that will make Europe a mess.’

UK ‘Super Thursday’ May Prompt Further GBP Strength

Next Thursday, February 8, sees the latest ‘Super Thursday’ in the UK, when the BoE’s announces its latest monetary policy settings and Quarterly Inflation Report (QIR). While all monetary policy settings are expected to remain unchanged, the QIR may highlight that inflation remains stubbornly high despite the GBP’s recent strength trimming imported inflation. And with UK growth seemingly shaking off Brexit concerns, a rise in UK rates could happen sooner rather than later.

Bank of England governor Mark Carney recently told the House of Lords that the central bank’s focus is increasingly centred on getting inflation back down towards 2%. Carney said that as the slack in the economy is taken out, “we move into a more conventional area for monetary policy, where the focus is increasingly on returning inflation sustainably to target over an appropriate horizon.”

EUR/GBP Nears Support Levels

EUR/GBP currently trades around 0.8730 around two pence lower than the 2018 high of 0.8930 and within sight of a recent double low around 0.86875 and the Fibonacci retracement level of 0.86925. A break below this level – driven by GBP strength and EUR weakness – could see the pair fall to the next level of support at 0.85477.

EUR/GBP Price Chart Daily Timeframe (June 17 – February 1, 2018)

EUR/GBP Likely to Fall as Juncker Warns Over EU Unity

Chart by IG

EUR/GBP Positioning Sending Bullish Signals

IG Client Sentimentshow 48.1% of traders are net-long with the ratio of traders short to long at 1.08 to 1. The number of traders net-long is 5.7% lower than yesterday and 4.6% higher from last week, while the number of traders net-short is 8.3% higher than yesterday and 22.4% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURGBP 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 EURGBP-bullish contrarian trading bias

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--- 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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