EUR/GBP risks remain lower, GBP/JPY may rise on month end flows
GBP outperformance vs euro and Japanese yen can continue.
Month and quarter end flows create choppy conditions
A rather choppy session for G10 FX with month and quarter-end flows the likely driver. In turn, with little on the domestic front for the pound, rebalancing is likely to remain in focus for the currency. GBP/USD has thus far managed to maintain a foothold above the $1.37 handle, however, with USD very much in the driving seat as firmer US yields underpin, my attention is instead focused on GBP crosses.
EUR/GBP risks remains tilted to the downside
Yesterday, EUR/GBP broke out from its month-long range, falling to £0.85. The continued vaccine advantage that the UK has over the European Union (EU) is likely to keep EUR/GBP risks tilted to the downside, particularly with the EU heading towards a third Covid-19 wave, meanwhile the UK have set out their roadmap to normalisation. Taking a look at the chart, near term support sits at £0.85 the figure with the £0.847 below, while on the topside £0.864 remains a hurdle.
EUR/GBP chart: daily time frame
GBP/JPY and month-end flows
Another GBP cross that tends to pique my interest around this time of the month is GBP/JPY, which typically performs pretty well on the final day of the trading month (particularly ahead of the 4pm London fix) as the table below shows. With that in mind, Japanese financial year (FY) end may also provide a tailwind to exacerbate the move higher, alongside the move higher in US yields.
GBP/JPY performance on final trading day
GBP/JPY IG sentiment signals further gains
Retail trader data shows 39.19% of traders are net-long with the ratio of traders short to long at 1.55 to 1. The number of traders net-long is 6.84% higher than yesterday and 21.65% higher from last week, while the number of traders net-short is 3.07% higher than yesterday and 3.07% 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.
Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBP/JPY price trend may soon reverse lower despite the fact traders remain net-short.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Start trading forex today
Trade the largest and most volatile financial market in the world.
- Spreads start at just 0.6 points on EUR/USD
- Analyse market movements with our essential selection of charts
- Speculate from a range of platforms, including on mobile
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.