Sterling (GBP) Talking Points:
- EURGBP driven lower by positive Brexit commentary.
- Next leg lower may happen on Thursday as the BoE and ECB opine.
The DailyFX Q3 GBP Forecast is available to download.
Sterling Looking to Keep Recent Rally Alive
After languishing in recent months, GBP received another boost Monday when EU chief negotiator suggested that a Brexit deal could happen in the next 6-8 weeks.This follows on from his recent commentary that the EU is willing to offer the UK an unprecedented third-party trade deal. The change in tone has seen EURGBP back-off from a recent high around 0.9100 to a current level around 0.8900.
A look at the weekly chart shows that this move has more to go with the pair making three lower highs/lower lows in the past three weeks, a negative technical set-up. EURGBP also nears the 20- and 50-day crossover near 0.8850, ahead of the 23.6% Fibonacci retracement at 0.8845. The April weekly low at 0.8621 remains a medium-term target.
IG Client Sentiment shows that retail investors are net-short EURGBP but have been chnagingb their positions recently.
EURGBP Weekly Price Chart (January 2016 – September 11, 2018)
The daily EURGBP chart is also negative with the pair trading below the 20- and 50-day moving averages and heading towards the 200-day ma at 0.8823. A break and close below here would open the June 15 low at 0.8718 before the May 29/30 double low at just under 0.8700.
EURGBP Daily Price Chart (March 1 – September 11, 2018)
BoE and ECB Central Bank Double on Thursday
Ahead, the European Central Bank (ECB) and the Bank of England (BoE) will announce their latest monetary policy settings on Thursday – no changes expected from either central bank – but the accompanying commentary and press conference may give clues to future moves. UK monetary policy is currently on-hold until the Brexit outcome is clear, although the BoE keep reiterating that future policy is data dependent. Current thinking is that the next UK rate hike will be triggered in September 2019 although if current strong UK data continues, and Brexit is agreed, the May ‘Super Thursday’ meeting may come into play.
The ECB in contrast will continue with their accommodative policy as inflation refuses to move towards target. Growth in the single-bloc is slowing down and the fear is that, despite turning the QE tap off at the end of the year, the euro-zone may need another boost.
We turned positive on GBP-crosses recently, giving our reasons here:
GBPUSD Weekly Technical Outlook: Continuing to Press Higher
GBP Fundamental Outlook: Momentum to Drive Sterling Higher
Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.
--- Written by Nick Cawley, Analyst
To contact Nick, email him at nicholas.cawley@ig.com
Follow Nick on Twitter @nickcawley1
