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EUR/GBP Analysis: EURGBP Turns Sharply Higher After Failed Breakdown

EUR/GBP Analysis: EURGBP Turns Sharply Higher After Failed Breakdown

Richard Snow, Analyst

EUR/GBP Analysis:

  • EUR/GBP has continued to build on yesterday’s gains after disappointing UK GDP data
  • On the back of a failed move lower, EUR/GBP has advanced and bulls are eyeing a retest of the June high
  • IG client sentiment reports 67% of EUR/GBP traders remain net short with a daily reduction in longs of 8%

EUR/GBP Builds on Yesterday’s Upward Momentum

EUR/GBP has surged higher and has built on yesterday’s bullish advance which has served to invalidate the recent break lower, at least for now. Heading into the afternoon session, Sterling has seen losses against many major currenciesafter GDP data (m/m) came in at 1.8%, well short of the expectations for 5.5%. The price chart below reveals that prior trendline support is back in play.

Keep an eye on economic data releases via our DailyFX economic calendar

The price chart below contains the MACD indicator which highlights the potential of a possible MACD crossover, however, this has not yet taken place. Continued top side momentum may bring into play the area of confluence where the near-term high coincides with the 61.8% Fibonacci retracement level (drawn from the march 19 high). This area represents a zone of resistance that previously saw the rejection of higher prices.

EURGBP daily chart

Chart prepared by Richard Snow, IG

EUR/GBP Strategy Moving Forward

Bulls will be eying the close of the near-term high at 0.9139 (yellow) and should price continue higher, the next major level of resistance becomes 0.91758 (black).

From the bearish perspective, the possibility of a retracement after such a strong move cannot be disregarded. Should the market move lower, bears would be on the lookout for a drop towards the 0.9067 level (purple) and a further decline would bring the diagonal trendline support into play.

EURGBP daily chart showing key levels

Chart prepared by Richard Snow, IG

Will the Uptrend in EUR/GBP Persist as Clients Remain Net Short?

  • At the time of writing, IGCS records 67% of EUR/GBP traders remain net short – when taken with a contrarian outlook would ascribe a bullish reading.
  • The number of traders net-long is 8% lower than yesterday and 15% lower from last week, while the number of traders net-short is 3% lower than yesterday and 18% higher from last week.
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/GBP prices may continue to rise.

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

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

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