EUR/GBP: downtrend pauses but remains intact
EUR/GBP is likely to resume its move lower in the medium term as a no-deal Brexit looks increasingly unlikely. The pair is an accurate reflection of Brexit market sentiment.
EUR/GBP traders continue to price out no-deal Brexit
The sharp fall in EUR/GBP seen over the last five weeks has paused a fraction away from lows seen nearly three months ago as traders continue to price out the option of the UK leaving the European Union (EU) without a deal. While nothing is straightforward where Brexit is concerned, moves and commentary from both sides suggest that there is more urgency towards finding a common ground. EUR/GBP is the market’s ‘Brexit Play’ and will remain so going forward.
Over the previous weeks, UK prime minister Boris Johnson has changed his tune marginally from previously bullish statements saying that the UK is leaving the EU on 31 October deal or no-deal, to a marginally more consolidatory stance saying that a deal is his preferred option. The EU also remain firm in their stance but have also hinted that while concessions may be found to bring both sides together, the current withdrawal agreement will not be changed.
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EUR/GBP the cleanest currency pair to trade Brexit
To this end the EU and UK recently announced that they would be increasing the frequency of their meetings and would be talking daily to try and flesh out a way forward. While 31 October remains the final deadline for Brexit, if a deal is to be reached then its needs to be presented to the European Council at their meeting in Brussels on 17-18 October at the latest.
The cleanest pair to trade Brexit is EUR/GBP and recent market moves suggest that a no-deal Brexit is starting to be priced out of the market. A look at the EUR/GBP chart shows the pair falling for the last six weeks from a near three-year high at £0.9325, as EU-UK talks intensify.
EUR/GBP likely to fall further on positive Brexit negotiations
If Brexit negotiations take a positive turn, and no-deal exit is taken off the table for good, EUR/GBP is likely to fall further. The chart shows that EUR/GBP has retraced more than 50% of the early March to mid August rally and continues to head lower. Initial support for the pair comes from the 200-day moving average, currently at £0.8825, before the 61.8% Fibonacci retracement level at £0.8798 comes into play. A clean break and close below here would open a larger move all the way back to the start of this year’s rally at £0.8472. The chart also shows a bearish sequence of lower highs and lower lows off the 12 August high, while the pair are also below both the 20-day moving average and 50-day moving average, adding to bearish momentum.
In the event of the UK leaving the EU without a deal – hard Brexit – then the recent £0.9325 high will be tested quickly and may not hold.
EUR/GBP daily price chart (February – 19 September 2019)
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