Short term
Trade view / 18 July 2016 at 2:56 GMT

EURGBP: Sterling may be all sold out

Managing Director / Technical Research Limited
New Zealand
Instrument: EURGBP
Price target:
Market price:

The 10-year German bund yield has moved back into positive territory (just) suggesting markets aren’t expecting any further easing by the European Central Bank when issues a policy review statement on Thursday.

But last week’s flash estimate of inflation in June showed the ECB will need to keep the peddle to the floor for many months yet.

In contrast, market pricing suggests a high probability the Bank of England Monetary Policy Committee will vote to cut the bank rate by 25 basis points on August 4 to coincide with its quarterly inflation report which will include updated economic forecasts.

There are a couple of MPC members out on the speaking circuit this week and we may get a better feel for which of “a range of possible stimulus measures” the BOE is leaning towards.

On the data front, UK retail sales numbers will be of interest on Thursday but perhaps a better guide to post-Brexit sentiment will be Markit’s special PMI survey on Friday.

Management and risk description

Having been the weakest of the major currencies for quite some time, Sterling may now prove the strongest “hold-out” against a stronger US Dollar, for a while.

From an Elliott Wave perspective, it is tenable to interpret a completed 5-wave sequence from EURGBP’s July 2015 low of .6930 to its July 2016 high of .8625 (refer daily chart below).

This would then leave EURGBP vulnerable to a significant corrective retracement. eg. a Fibonacci 38.2% retracement would yield a sell-off toward the .7980 level, whilst a 61.8% retracement would extend toward .7580.

Furthermore, from a classical charting stand point, there is a potential developing 3-week Head and Shoulders pattern (see daily chart) with a sustained break below Neckline support (currently situated about .8250) yielding a downside projection toward the .7880 level.


Entry: Any break of 0.8250 today/tomorrow presents a selling opportunity.

0.8308, initially. 

50% at 0.8028.

Time horizon:
Allow several weeks.

EURGBP daily chart (click to expand)
EURGBP daily chart
EURGBP weekly chart (click to expand)
Source, both charts: ThomsonReuters  

— Edited by Adam Courtenay

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Non-independent investment research disclaimer applies. Read more
Charles Asmar Charles Asmar
Good morning Max, Thank you for your help and the parameters! Any advise for GBPUSD, NZDUSD? Appreciate your help and concern, Cordially, Charles


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