EUR/GBP Pressured by Rate Expectations and Covid Cases, UK Inflation Data Looms

EUR/GBP Price, Chart, and Analysis

• UK interest rate hike in December looking likely.
• UK inflation is set to rise further.
• EU covid rates turn higher.

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EUR/GBP traders will need to be alert over the next few days and weeks with a combination of hard data, BoE rate hike expectations, and rising covid cases in Europe will give further clues to the direction of the pair in the short term. In addition, ongoing talks between the EU and UK over the Northern Ireland protocol, and the real risk that the UK may trigger article 16, will add extra volatility into EUR/GBP.

Article 16: Why Triggering it Risks an All Out UK-EU Trade War

The latest CME Bank of England rate expectations show a 100% probability that UK interest rates will be raised at the December 16 meeting. The UK central bank disappointed the market at the last MPC meeting by keeping rates unchanged despite policymakers noting that that price pressures could hit 5% next year, a level not seen in nearly a decade.

CME Bank of England Watch Tool

The latest UK inflation data will be released on Wednesday this week, along with the final Euro Area reading, and any beat or miss compared to the market forecast of 3.9% for the headline reading will move Sterling and EUR/GBP. Tuesday’s employment data will also be worth watching although the employment change reading is for August and the unemployment rate for September, both backward-looking releases.

Covid cases in Europe are on the rise, triggering new lockdown measures. The Netherlands last Friday announced a new three-week partial closure of bars, restaurants, and essential and non-essential shops to try and stem the sharp rise of new cases, while Austria has imposed new lockdown measures on around 2 million citizens who have not been fully vaccinated. Germany is also seeing a fresh rise in covid cases with over 45k new cases reported last Friday, sparking concern about a fourth wave across the country.

EUR/GBP, up until recently a range-based pair, is now becoming more volatile. The pair recently hit a 21-month low of 0.8403 before rallying back to 0.8595 in less than two weeks. The pair now trades around 0.8535. EUR/GBP is now back below the 200-day simple moving average and just above the 50- and 20-day smas, leaving 0.8500 the next target for bearish traders. Below here is a cluster of recent highs and lows all the way back to the October 26 low.

EUR/GBP Daily Price Chart November 15 2021

Retail trader data show 55.94% of traders are net-long with the ratio of traders long to short at 1.27 to 1. The number of traders net-long is 3.63% higher than yesterday and 14.66% higher from last week, while the number of traders net-short is 6.11% higher than yesterday and 7.73% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBP prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/GBP trading bias.

What is your view on EUR/GBP – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.