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EURGBP Analysis: Technical Support Broken, Downtrend Reinforced

EURGBP Analysis: Technical Support Broken, Downtrend Reinforced

Nick Cawley, Strategist

Euro and GBP Talking Points:

  • Positive Brexit talk should be watched but taken with a pinch of salt.
  • EURGBP technical set-up remains bearish in the short- to medium-term.

The DailyFX Q4EUR and GBP Forecasts are available to download.

EURGBP – Lower Prices Ahead as Technicals Take Control.

A combination of a weak EUR and renewed GBP strength has driven EURGBP back down to multi-month lows with the likelihood of even lower prices ahead. The Euro has suffered this week on Italian budget fears and neutral to mildly negative data, with weak German services/composite PMI readings on Wednesday the standout. Italian government bond yields remain within 10-12 basis points of a new multi-year high as investors fret that Italy’s huge debt pile will weigh on the government’s budget spending plans. If yields continue to rise, the cost of servicing this debt may well prompt rating’s agencies to downgrade the country’s outlook, causing funding costs to rise further.

Sterling is starting to perk up on chatter that a Brexit deal is becoming more likely after EU President Donald Tusk re-iterated that a Canada+++ deal is still on the table. While GBP positive, it should be remembered that Sterling strengthened going into the recent Salzburg meeting, only to fade back after the EU demanded more from the UK.

The technical outlook for EURGBP has turned bearish with the pair having broken through the 200-day moving average, a negative sign. The six-week downtrend is also intact with little in the way of support before 0.8700. Below here the April low of 0.86207 comes into play and this looks likely to tested if positive Brexit rumors and talk are confirmed over the next two weeks.

EURGBP Daily Price Chart

EURGBP Analysis: Technical Support Broken, Downtrend Reinforced

IG Client Sentiment Datashows that retail are 47.2% net-long EURGBP, a mildly bullish contrarian set-up. However recent shifts in daily and weekly sentiment give us a mixed/neutral EURGBP outlook.

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.

What is your view on EURUSD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.

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