EUR/GBP languishes near key support after risk shifts from UK to EU
James Chen, CMT April 3, 2017 4:37 PM
Sterling fell across the board early on Monday due in part to key manufacturing data from the UK that fell short of expectations. The UK’s manufacturing PMI for March came in at 54.2, which still represents an expansion, but fell below expectations for 55.1 and slightly below the previous month’s result.
- Sterling fell across the board early on Monday due in part to key manufacturing data from the UK that fell short of expectations. The UK’s manufacturing PMI for March came in at 54.2, which still represents an expansion, but fell below expectations for 55.1 and slightly below the previous month’s result.
- Since Wednesday of last week, however, when Article 50 formally launched the process of separation (Brexit) between the UK and European Union, the pound has been surging. This sterling strength was pronounced against the euro, prompting a sharp drop for the EUR/GBP currency pair.
- This seemingly counterintuitive move in the wake of Article 50 can be attributed in part to the fact that Brexit-driven pressure on the pound had already been well priced-in to the UK’s currency, and the official triggering of the separation process had become little more than a formality.
- Also, now that the triggering of Article 50 had finally occurred after many months of anticipation, there were clearly no catastrophic consequences last week, and short positions had been unwinding. It should be noted, however, that the entire process of separation will likely take years, and trade negotiations between the now-separate entities could go on for quite some time. This could introduce additional risks to the UK and sterling that are not currently being reflected in the pound.
- Aside from these potential uncertainties stemming from the ongoing Brexit negotiations, though, there is a perception that risk considerations have now shifted from the UK back to the European Union. With the launch of Article 50 now out of the way, the future of the EU and euro are increasingly put into question, especially with the upcoming French presidential election threatening the integrity of both the EU bloc and the euro shared currency. The prospect of such a staunch anti-EU candidate as Marine Le Pen potentially leading France and pushing for a “Frexit,” is indeed enough to place a great deal of pressure on the euro.
- This euro pressure was helped further along last week by the European Central Bank, which essentially denied that it would be ending its easy monetary policy any time soon.
- If currency concerns indeed continue to shift from the pound to the euro, a EUR/GBP breakdown would be a likely result.
- From a technical perspective, EUR/GBP has just bounced off a major uptrend support line that extends back to the late-2015 lows. Subsequently, with any true breakdown below this trend line amid further pressure on the euro against a rebounding pound, EUR/GBP could be pushed down in the near-term towards its next major bearish targets at the 0.8400 and 0.8300 support levels.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.