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Brexit Latest: EURGBP Price Set to Break Lower Charts Suggest

Brexit Latest: EURGBP Price Set to Break Lower Charts Suggest

Nick Cawley, Strategist

Sterling, Euro and Brexit Latest:

  • Positive Brexit sentiment and weak Euro-Zone data steer EURGBP ever lower.
  • Retail traders continue to build long EURGBP positions, a negative sign.

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EURGBP Relief Rally is Just That, a Correction from Oversold Conditions

EURGBP is currently bouncing off oversold conditions after hitting a 20-month low late-Thursday after losing 5 big figures from the start of January. The Euro is under pressure from a raft of negative economic data and sentiment readings suggesting that growth is slowing sharply while price pressures remain stubbornly weak. The latest ECB Quarterly Survey shows Euro-Zone growth falling to 1.5% in 2019 – down from 1.8% in the prior quarters projections – with inflation also falling to 1.5% from a prior reading of 1.7%. In addition, media talk continues that Germany, the single-blocs economic engine, will shortly downgrade its growth forecast to 1% for 2019, against previous expectations of 1.8% as trade uncertainty and Brexit fears bite.

Sterling (GBP) on the other-hand is trending higher across the board as investors continue to price-out a No Deal Brexit and price-in a soft Brexit closer to PM May’s Plan B. This growing realization that, maybe, Brexit lows across the Sterling space have already been made and a stronger British Pound lies ahead.

EURGBP is moving higher off Thursday’s 20-month low after the pair dropped into oversold territory for the first time in over three-months. This is likely to be a relief rally and reverse lower soon, especially as the 20-day moving average has dropped below the 200-day ma, flashing ongoing EURGBP negative sentiment. The pair have also touched, and just broken, below the mid-April 2018 low opening the way for longer-term re-trace back down to the April 2017 low at 0.83133.

EURGBP Daily Price Chart (April 2017– January 25, 2019)

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IG Client Retail sentiment data confirms a negative picture for EURGBP. Retail are 61.5% net-long the pair, a bearish contrarian indicator. Retail have added to their daily and weekly net-long EURGBP positions - +20.2% and +30.9% respectively - and this data gives us a stronger EURGBP bearish contrarian trading bias.

What is your view on the longer-term outlook for EURGBP?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.com or via Twitter @nickcawley1.

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

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