EUR/GBP Price Forecast: EURGBP Trades to 12 Week Low, Euro CPI data

EUR/GBP Analysis:

• EUR/GBP trades to 12 week low on the back of disappointing Euro CPI flash estimates
• EURGBP has oscillated around the 0.9000 level for extended periods. Daily price action may provide insight into future possible directional moves using Fibonacci levels as well as key levels support and resistance
• IG Client Sentiment data providing mixed reading as short traders outweigh longs ever so slightly

High-Flying Sterling Reaches 12 Week High vs the Euro

The Pound has gained most noticeably in recent days against the dollar after Jerome Powell announced the adoption of Average Inflation Targeting (AIT) at this year’s Jackson Hole event, which may lead to a softer dollar for an extended period of time.

Watch: Jackson Hole Symposium: Where to Next for the Fed?

The Eurozone currency has also gained against the dollar as the Euro reached a two-year high on the last day of August. However, recent price action on the back of disappointing Euro CPI data saw the Euro trade lower against the Pound which brings into focus a number of key levels.

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EUR/GBP Key Technical Levels

Since failing to test the June swing high and breaking below trendline support, price action has oscillated around the 0.9000 psychological level with relative consistency. However, after trading below the previous swing low (0.8938) the possibility of a continued lower move presents itself.

A break and close below 0.8938 opens up the potential for an extended move lower towards the 61.9% Fib level (drawn from the April low to June high) at 0.8864, which acted as support in the past.

Fibonacci levels can provide assistance in identifying future levels of support and resistance

Should the bulls see value at current levels and push EUR/GBP higher to close above the swing low at 0.8938, the 0.9000 level comes back into focus with any further bullish momentum highlighting the next level of resistance at the 23.6% Fib level (0.9057).

EUR/GBP Daily Chart

Chart prepared by Richard Snow, IG

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IG Client Sentiment Data Providing a Mixed Reading

• At the time of writing, EUR/GBP retail trader data shows 47.26% of traders are net-long with the ratio of traders short to long at 1.12 to 1
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/GBP prices may continue to rise.
• Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes hints at a further mixed EUR/GBP reading.

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX