A Technical View

The EUR/GBP is closing in on the weekly lows, despite the rally in the EUR/USD above 1.20000 this week. That’s a very impressive feat for the GBP single currency, given that the EUR/USD has seen levels this week it hasn’t seen since 2014. 

The price action in the GBP was interesting at the end of this week, as we got past a week full of UK economic data which surprisingly didn’t disappoint. Friday morning, the UK Manufacturing production numbers hit the wires, and that was the green light that allowed for the rally in the GBP currency on Friday. With the pressure building on the entire Eurozone that is dependent on tourism and exports, the EUR is trading at very lofty levels against many currencies. The rally has been staggering over the last 9 months, so we would expect the ECB “jawboning” of the EUR single currency is likely to commence in the coming weeks to temper the rally.

Technically, this price action sets up a potentially good move lower in the EUR/GBP in the coming weeks. Last week the EUR/GBP set up a key reversal candle. This week, we are closing below the breakout point from October 2016. We had a couple Fibonacci rejections of extensions and retracements come in around .9200-.9300 pence levels. On top of that, the last two weeks the market squeezed all the shorts and probably got the market fairly long while above the .9200 level. Therefore, the risks are now pointing lower for the pair.

With ongoing Brexit negotiations, any headline that deters from the expected eventuality of Brexit happening, could further boost the GBP from these historically low levels. And as long as the UK economic data continues to be “not that bad” the risk of the EUR/GBP revisiting the mid .8XXX is not out of the question now.

Blake Morrow