EUR/GBP Analysis:
- Boris Johnson gives EU until 15 October to come to an agreement
- EU and UK GDP data plus ECB rate decision out this week
- Sterling hurt after threats to undermine Brexit withdrawal agreement
- IG Client Sentiment mixed: hints at potential Sterling weakness
Brexit Update: Boris Johnson Draws Line in the Sand
UK Prime Minister, Boris Johnson suggested that the EU and UK reach an agreement before the 15th of October or both parties should just “move on”. Trade deal negotiations are set to resume on Tuesday after progress stalled in recent weeks. In addition, Johnson said that in the absence of an agreement, the UK would fall back on WTO trade terms which Johnson described as a “good outcome for the UK”. For a full report read our morning GBP update.
Risk Events Ahead: EU and UK GDP data, ECB Rate Decision and Eurogroup Meeting
Both the Eurozone and the UK are set to release gross domestic product (GDP) data this week as their respective economies emerge from the coronavirus-induced lockdown.
The European Central Bank (ECB) rate decision is likely to remain unchanged however the press conference may offer greater insight into how the central bank plans to support a Eurozone recovery amid stubbornly low inflation (CPI) and a stronger currency (renders EU exports relatively more expensive).
Why are central bank announcements so important? Find out how central banks impact the forex market
Then on Friday, Eurozone leaders meet to discuss the way forward for the economic union with a focus on Euro support mechanisms and government finances. With the ECB reluctant to push interest rates further into negative territory, the conversation turns once again to the Pandemic Emergency Purchase Programme (PEPP), which was agreed upon to stimulate economic activity in the bloc and has yet to be fully utilized.
DailyFX economic calendar
For all market-moving data releases and events see the DailyFX Economic Calendar
Sterling Retreats after Posting 12 Week High vs The Euro
In the aftermath of Boris Johnson’s comments, Sterling has weakened against the Euro, erasing recent gains. This latest moves helps validate the bullish engulfing pattern (blue rectangle) that hinted at a possible bullish reversal.
Learn how to identify and apply the bullish engulfing pattern to price charts
Continued bullish momentum would render the 38.2% Fib retracement (drawn from the April low to the June high, 2020) the nearest resistance level followed closely by the psychological round number of 0.9000. Thereafter, 0.9057 become the next level of resistance.
In the event this is simply a retracement of the larger downtrend, initial support would come in at 0.8938 ( close to today’s opening level ), followed by the 61.8% Fib level at 0.8864. A large and sustained move lower would then bring the weekly significant 0.8770 level into focus.
EUR/GBP Daily Chart: Recent move supports bullish engulfing reversal pattern
Chart prepared by Richard Snow, IG
Client Sentiment Mixed: Possibility of Continued Sterling Weakness (Short-Term)
- At the time of writing, EUR/GBP retail trader data shows 53.64% of traders are net-long with the ratio of traders long to short at 1.16 to 1.
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBP prices may continue to fall – but we still need to consider the daily and weekly changes (below).
- The number of traders net-long is 0.23% higher than yesterday and 2.51% lower from last week, while the number of traders net-short is 3.94% higher than yesterday and 0.81% lower from last week.
- Recent changes in sentiment warn that the current EUR/GBP price trend may soon reverse higher despite the fact traders remain net-long.
| Change in | Longs | Shorts | OI |
| Daily | 25% | 21% | 23% |
| Weekly | -19% | 40% | 4% |
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
