EUR/GBP Price Outlook: Support Broken as Euro Weakness Weighs Further
EUR/GBP Price, Chart and Analysis:
The European Central Bank may need to act soon if inflation in the Euro Zone fails to turn higher over the next few months. Tuesday’s first look at price pressure missed already lowly expectations with both the m/m and y/y rate both in negative territory as the economy continues to be buffeted by the effects of the COVID-19 virus.
While the ECB says that they don’t target a specific exchange rate, comments by the ECB chief economist suggest that they are keeping a very close watch on the single currency. When EUR/USD briefly hit a 28-month high of 1.2010 yesterday, ECB’ Philip Lane said that the 1.200 EUR/USD level ‘matters’, leaving the market speculating that further stimulus measures may be needed to boost the growth and price pressures in the Euro Zone. The single currency weakened post-commentary across a range of currencies, including Sterling.
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An already weak EUR/GBP fell further yesterday and today and has broken through multi-week support. The pair have range traded of late and the recent breakout suggests that lower prices may lie ahead. The pair are also trading below both the 20- and 50-day moving averages, highlighting current weakness, while prior support at 0.8865 and the 200-dma at 0.88375 are within touching distance. The chart shows that the latest sell-off has pushed the pair into oversold territory and this may slow any further weakness in the short-term.
EUR/GBP Daily Price Chart (January – September 2, 2020)
IG client positioning shows that traders are roughly balanced on EUR/GBP but retail has increased their net-longs over the last day and week, producing a stronger EUR/GBP-bearish contrarian trading bias.
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