EUR/GBP Touches 2.5-Year Low, But More Downside Potential Remains
Matt Weller, CFA, CMT December 4, 2019 3:36 PM
As we noted on twitter earlier today, the British pound is once again the strongest major currency on the day…but more to the point, it’s also making a run at the Canadian dollar for the strongest major currency on the year.
While it’s true that traders generally fear uncertainty (and with the looming specter of Brexit and now an election in less than two weeks’ time, there is no major currency that’s experienced more uncertainty this year than the pound), it’s also true that ambiguity creates opportunity for traders. As the perceived probability of no-deal “hard” Brexit has faded, the pound has come storming back against its rivals, hitting a 7-month high against the greenback and a 2.5-year high against the euro.
Keying in on EUR/GBP, the pair briefly peeked below 0.8480 to its lowest level since May 2017 this morning. From a technical perspective, rates remain in a clear downtrend off their August highs, with the unit down an astounding 800 pips over that period:
Source: TradingView, FOREX.com
As the chart below shows, EUR/GBP is testing strong previous support just below 0.8500, and with the RSI indicator in a persistent state of bullish divergence, there’s a case for a small recovery in the latter half of this week.
Taking a step back, the longer-term bias clearly remains to the downside; accordingly, readers may want to consider short opportunities on bounces toward the top of the recent bearish channel near 0.8530 or on a confirmed close below 0.8480 support, especially if opinion polls continue to show the Conservatives with a comfortable majority. Below that key area, there’s little in the way of relevant support until the May 2017 lows just under 0.8400 and the April 2017 trough around 0.8300 after that. Only a break above the weekly high at 0.8570 would shift the near-term bias back in favor of the bulls.
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.