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EUR/GBP Price Outlook: Weekly Close Key as Corrective Risks Brew

EUR/GBP Price Outlook: Weekly Close Key as Corrective Risks Brew

Justin McQueen, Strategist

EUR/GBP Price Analysis and News

  • Low volatility to keep trading conditions muted
  • EUR/GBP rises from YTD low to test 0.8500
  • Favouring downside, although key reversal raises correction risk

Volatility indicators are at the lows, price action is minimal and with a lack of noteworthy data releases on the economic calendar, subdued trading conditions are likely to persist as we close out the week. That said, EUR/GBP has grabbed my attention with the cross currently testing prior support now resistance at the psychological 0.8500 handle, whereby the weekly close will be keenly watched.

While my bias remains for additional downside in EUR/GBP, we have seen this episode before with the cross seeing corrective price action after a false break below 0.8500, which had been witnessed at the beginning of Q2.

The rationale for remaining bearish on EUR/GBP is as follows;

  • BoE exit sequencing raises the risk of a rate hike being brought forward vs dovish ECB
  • DE/GB bond spreads remain positive for GBP and thus maintain pressure on EUR/GBP
  • Low volatility and stable indices favour higher beta currencies vs preferred funding currencies such as the Euro
  • Several topside levels to keep EUR/GBP upside capped

DE/GB Bond Spread Maintains Pressure on EUR/GBP

EUR/GBP Price Outlook: Weekly Close Key as Corrective Risks Brew

Source: Refinitiv

Taking a look at the chart, as mentioned previously the focus will be primarily on the weekly close, where a failure for EUR/GBP maintain a foothold above 0.8500 will likely keep risks tilted to the downside. On the topside however, short term resistance is situated at 0.8530 markingthe 20DMA, while further resistance above sits at the August highs (0.8550-60), which also coincides with the 50DMA. Although, should the cross close above the 50DMA, this would likely raise the risk that price action is somewhat corrective.

EUR/GBP Chart: Daily Time Frame

EUR/GBP Price Outlook: Weekly Close Key as Corrective Risks Brew

Source: Refinitiv

Strong Data to Underpin GBP But Unlikely to Shift BoE Policy

Looking ahead to next week, market participants will digest the latest slew of tier 1 UK data releases, most notably the jobs report and inflation data. Now while a shift in BoE policy is unlikely given that the BoE is waiting to see the impact of the furlough scheme expiration (at the end of September) on the labour market, strong figures will nonetheless underpin the Pound.

Economic Calendar

EUR/GBP Price Outlook: Weekly Close Key as Corrective Risks Brew

Source: Refinitiv

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