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EUR/GBP, GBP/JPY & GBP/USD Coil as UK Election Campaigning Begins

EUR/GBP, GBP/JPY & GBP/USD Coil as UK Election Campaigning Begins

2019-11-06 19:00:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Brexit Latest News:

  • Several GBP-crosses have coiled into sideways consolidation patterns as British voters get ready to determine the fate of Brexit; the UK general election will be held on Thursday, December 12.
  • The British Pound continues to see short-term (overnight to one-month) volatility readings stay depressed as traders await the results of the UK general election.
  • Retail trader positioningpoints to a mixed trading outlook for the British Pound.

Looking for longer-term forecasts on the British Pound? Check out the DailyFX Trading Guides.

With the UK parliament having agreed in principle to UK Prime Minister Boris Johnson’s Brexit deal, the October 31 deadline was pushed back, and the fears of a no-deal, hard Brexit evaporated. But since the news of a call for a snap general election, the British Pound has made little progress, one way or the other.

The three major GBP-crosses – EUR/GBP, GBP/JPY, and GBP/USD – have been trading sideways since mid-October as British voters get ready to determine the fate of Brexit; the UK general election will be held on Thursday, December 12.

The British Pound continues to see short-term (overnight to one-month) volatility readings stay depressed as traders await the results of the UK general election – regardless of the upcoming November Bank of England rate decision. As a result, retail trader positioning and sentiment has been neutralized in recent days.

GBP/USD Rate Technical Analysis: Daily Chart (NOVEMBER 2018 to NOVEMBER 2019) (Chart 1)

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Bullish momentum in GBP/USD has been lost in the early days of November. GBP/USD is back below the daily5- and 8-EMAs, but remains above the daily 13-, and 21-EMAs. Daily MACD has started to trend lower (albeit in bullish territory) after reaching its highest level since January, while Slow Stochastics are quickly declining back to its median line.

The triangle flag that has formed sees GBP/USD continuing to hold above the descending trendline from the April 2018 and March 2019 highs broken, as well as the 61.8% retracement of the “post-Brexit vote trading range” – the October 2016 low to the April 2018 high – at 1.2849. It still holds there still may be upside potential.

IG Client Sentiment Index: GBP/USD Rate Forecast (NOVEMBER 6, 2019) (Chart 2)

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GBP/USD: Retail trader data shows 52.34% of traders are net-long with the ratio of traders long to short at 1.10 to 1. The number of traders net-long is 0.44% higher than yesterday and 5.39% lower from last week, while the number of traders net-short is 3.20% lower than yesterday and 7.78% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

GBP/JPY Technical Analysis: Daily Rate Chart (NOVEMBER 2018 to NOVEMBER 2019) (Chart 3)

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Since our last GBP/JPY rate technical forecast update, when it was noted that “[rates are] holding below the descending trendline resistance (dating back to the January 2018 high) as well as the 50% retracement of the 2016 to 2018 low/high range at 140.70,” not made much progress has been made. In fact, GBP/JPY rates have been contained within the October 17 high/low range between 138.62 and 141.51.

Like GBP/USD, GBP/JPY is back below the daily5- and 8-EMAs, but remains above the daily 13-, and 21-EMAs. Daily MACD has been trending lower throughout November thus far (albeit in bullish territory), while Slow Stochastics are falling back to its median line. A bullish breakout is not out of the question above 141.51, although traders should be open to more downside if GBP/JPY loses 138.62.

GBP/JPY Technical Analysis: Weekly Rate Chart (October 2016 to NOVEMBER 2019) (Chart 4)

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The weekly timeframe is more bullish for GBP/JPY than the daily timeframe. GBP/JPY rates are still completely above the weekly 8-, 13-, and 21-EMA envelope, which remains in bullish sequential order.Weekly MACD continues to advance above its signal line into bullish territory,while Slow Stochastics are sustaining their elevation in overbought territory. Longer-term bullish potential remains clear.

IG Client Sentiment Index: GBP/JPY Rate Forecast (NOVEMBER 6, 2019) (Chart 5)

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GBP/JPY: Retail trader data shows 44.88% of traders are net-long with the ratio of traders short to long at 1.23 to 1. The number of traders net-long is 6.05% higher than yesterday and 0.30% lower from last week, while the number of traders net-short is 5.98% lower than yesterday and 12.67% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/JPY prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/JPY trading bias.

EUR/GBP Technical Analysis: Daily Rate Chart (NOVEMBER 2018 to NOVEMBER 2019) (Chart 6)

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In the last EUR/GBP rate technical forecast update, it was noted that “since breaking below the 61.8% retracement of the 2019 low/high range at 0.8798 in mid-October, EUR/GBP rates have steadily declined and settled into a short-term band around 0.8600.” Indeed, EUR/GBP rates have made little progress over the past two weeks, holding within the October 16 high/low range between 0.8597 and 0.8716.

EUR/GBP rates are still below the daily 8-, 13-, and 21-EMA envelope, and it thus still holds that “the recent pause in selling may be just that – a pause.” Slow Stochastics have risen out of oversold territory, and daily MACD has started to climb back towards its median line – but there has been no corresponding recovery in EUR/GBP rates. A neutral view is appropriate, although traders should be open to more weakness in EUR/GBP below 0.8597; a bullish view would take root above 0.8716.

EUR/GBP Technical Analysis: Monthly Rate Chart (1994 to 2019) (Chart 7)

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EUR/GBP rates have been trading sideways for nearly three years. The bullish breakout attempt higher through the descending trendlines from the 2008 and 2015 highs and 2008 and 2016 highs failed; the inverted hammer in August saw follow through to the downside in September.

On the monthly timeframe, momentum continues to shift lower. Monthly MACD has issued a sell signal (albeit in bullish territory), while Slow Stochastics have already turned lower (in bullish territory as well). Until the 0.8472 to 0.9307 range breaks – until there is a clear shape of Brexit – traders may find themselves less anxious simply by staying away from EUR/GBP. A move below 0.8472 would suggest a significant, longer-term top has developed in EUR/GBP rates.

IG Client Sentiment Index: EUR/GBP Rate Forecast (NOVEMBER 6, 2019) (Chart 9)

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EUR/GBP: Retail trader data shows 64.21% of traders are net-long with the ratio of traders long to short at 1.79 to 1. The number of traders net-long is 6.64% higher than yesterday and 10.99% higher from last week, while the number of traders net-short is 7.38% higher than yesterday and 11.50% higher 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. Yet traders are less net-long than yesterday and compared with 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.

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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides

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