EUR/GBP Price Outlook: EURGBP Post-Brexit Price Action

EUR/GBP Talking Points:

  • EUR strength, GBP uncertainty and January central bank meetings
  • EUR/GBP remains range bound as choppy conditions likely to continue into 2021
  • IG Client Sentiment reveals sizeable increase in overnight short positioning

EUR strength, GBP uncertainty and January central bank meetings

Since March 2020, the Euro has strengthened not only against the US dollar but also vs the Pound Sterling. However, in the second half of 2020 EUR/GBP started trading within a broad range (0.8865 – 0.9292) and in a more choppy, sideways manner.

In September last year, the ECB President Christine Lagarde stated that the central bank does not specifically target the FX rate but the Euro has appreciated significantly from those levels and remains above ECB projections; warranting potential measures to stem the Eurozone currency’s rise. Both the European Central Bank (ECB) and the Bank of England (BoE) are scheduled to meet towards the end of this month to discuss current central bank policy and potential changes to their respective interest rate.

For all market-moving data releases and events see the DailyFX Central Bank Calendar

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EUR/GBP Technical Analysis

The weekly chart below presents the sharp rise in EUR/GBP before the prolonged period of consolidation within the two dashed lines.

EUR/GBP Weekly Chart

EURGBP weekly chart

Chart prepared by Richard Snow, IG

However, when analyzing the market using multiple time frame analysis, price action becomes a little clearer and it’s easier to view the nuances of the market when reducing the chart time frame.

The daily chart below zooms in on the established range with the incorporation of a mid-line as a reference point. The uncertainty around Brexit saw price action see-saw, moving above and below the mid-line with regular frequency.

Although a deal has been agreed, both nations are still in the early stages of operating under the new agreed terms and therefore, the true impact of the separation is still to play out and will be revealed in price action. In the absence of a clear discernable trend, price action may well continue to oscillate around the mid-line in the early days of 2021.

A break above the descending channel and above the midline brings into focus the 0.9160 level of resistance, while a bounce off of the upper trendline with increased selling momentum highlights the recent low of 0.8930.

EUR/GBP Daily Chart

EURGBP daily chart

Chart prepared by Richard Snow, IG

EUR Forecast

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IG Client Sentiment: 35% Increase in Overnight Shorts Likely to Interest Bulls

EURGBP sentiment

EUR/GBP: Retail trader data shows 41.82% of traders are net-long with the ratio of traders short to long at 1.39 to 1.

We typically take a contrarian view to crowd sentiment (in strong trending markets). However since this market is not trending, we cannot assess retail sentiment in the usual way. Nevertheless, it is still possible to glean useful information on EUR/GBP from the full IG CS report as overnight shorts increased by a sizable 35% while overall traders sentiment remains close to 60% short.

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

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

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