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CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.

EUR/GBP: euro-pound sterling positioning as Brexit talks resume

EUR/GBP retail FX trader positioning has turned less net short over recent sessions with Brexit talks due to resume this week.

Brexit Source: Bloomberg

EUR/GBP price outlook

  • EUR/GBP price action has gyrated sideways within a rough 200-pip trading range recently
  • Brexit talks scheduled to resume this week could spark volatility in the euro and pound sterling
  • EUR/GBP retail FX trader positioning has turned less net short over recent sessions

EUR/GBP price action might be ripe for heightened market activity this week as Brexit talks resume between EU/UK trade negotiators. Evidence of this is already being indicated by big shifts in EUR/GBP trader positioning according to recent IG client sentiment (IGCS) data.

IG client sentiment: EUR/GBP daily price chart (August 2019 to August 2020)

EUR/GBP ICGS Source: DailyFX
EUR/GBP ICGS Source: DailyFX

EUR/GBP sentiment has turned less bearish over the last several trading sessions, but is now roughly mixed on balance at 45% net long. Retail FX traders have not only increased EUR/GBP net long positioning by 17% over the last week, they have also unwound net short positioning by 8% during the same time frame. Fluctuations in EUR/GBP positioning has resulted in a net 3% increase in open interest.

We typically take a contrarian view to crowd sentiment, and the fact that majority of traders remain net short suggests EUR/GBP may continue to rise, but recent changes in positioning warns that the current price trend may soon reverse lower.

EUR/GBP daily price chart (3 March 2020 to 19 August 2020)

EUR/GBP Source: IG charts
EUR/GBP Source: IG charts

The EUR/GBP is now hovering comfortably above the £0.9 price zone as EUR/GBP coils between its series of lower highs and higher lows since June. There could be potential for EUR/GBP price action to continue bouncing back and forth between these recently defined technical barriers. Spot EUR/GBP is perched below its 50-day moving average (MA) at the time of writing, however, and might indicate EUR/GBP bears are currently in control.

Topping this level, which is also underpinned by month-to-date highs, might suggest a shift in bias tilted to the upside. Perhaps this could open the door for a test of the declining trendline and July swing highs. On the other hand, breaching technical support provided by the £0.9 handle could motivate EUR/GBP bears to make a larger push lower toward the 23.6% Fibonacci retracement highlighted on the chart above.

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