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The euro currency is once again losing ground against the British pound, following strong growth data from the United Kingdom and a soft CPI inflation number from the eurozone on Wednesday. Bears have returned, sending the EURGBP pair to a fresh thirteen month trading low. Going forward, traders have few reasons to be bullish towards the euro currency right now, due to the ongoing lockdowns in Germany and rising COVID-19 infection rates across many European nations.
Credit Suisse have a bearish view on the EUR/GBP pair this month, as the bank notes issues such as seasonality in the British pound, as the British currency tends to perform well during the month of April.
Analysts at the bank remarked “We note that April tends to be a seasonally positive month for GBP, which many links to dividend payments by UK companies in that month, many of which have overseas operations and therefore repatriate funds in order to make these payments.
Credit Suisse added “Typically, GBP strength in April is reversed by weakness in May. But for now, it tallies with our existing view set to add a further reason to expect EURGBP to reach for our new 0.8400 target in April.”
If this view is correct, then we could see the EURGBP pair incurring a seventh consecutive monthly loss. I personally believe that weakness in this pair could extend beyond the 0.8400 level, and I have the 0.8300 level a possible target.
It is noteworthy that a lot of currencies are weakening against the US dollar right now, and the EURUSD pair has seen significant depreciation already from the highs of the year. Sterling certainly has more scope to turn lower if this trend in the US dollar index gathers pace.
In the near-term, the techncials for the EURGBP pair look very shaky while price holds beneath the 0.8600 level. The 0.8540 level also appears to be particularly important for the EURGBP pair in the near-term.
Another bearish factor supporting further EURGBP weakness is traders sentiment. According to the ActivTrades Market Sentiment indicator, traders are still excessively bullish towards the pair, with sentiment at 81 percent positive.
It appears that retail traders on the wrong side of this trade and looking at previous sentiment readings they have been on the wrong side of the market since the 0.8800 level was breached earlier this year.
EURGBP Short-term Technical Analysis
The four-hour time frame shows that a bearish breakout from descending triangle pattern has taken place, following the recent move below the 0.8540 SUPPORT level.
These patterns are amongst the most reliable bearish patterns within existing down trends and are often considered to be bearish continuation patterns. The overall size of the pattern is suggesting that the EURGBP pair could be headed towards the 0.8300 area.
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EURGBP Medium-term Technical Analysis
The daily time frame continues to show that the EURGBP pair is trapped within an extremely large megaphone pattern between the 0.9500 and 0.8000 levels.
It appears that bears may be targeting the bottom of this typically neutral price pattern over the long-term horizon, and this could be a multi-month bearish target, rather than a medium-term target.
Megaphone patterns usually signify large trading ranges, followed by an extremely powerful technical breakout from the pattern. Traders should note that the size of the breakout is usually equal to the size of the megaphone pattern.
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