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The EURGBP looks braced for more downside after moving under its established price range, this could be due to the fact that due to weak German growth and more expected UK rate hikes.
Deutsche Bank has a bullish view on EURGBP and also a take on the data from the UK. The bank notes that “The market continues to take UK yields higher relative to peers, not just in nominal terms but crucially in inflation-adjusted (real) terms too. 5y real yields have moved up in the UK relative to the EU over the past month.”
On the fundamental backdrop they add that This is in contrast to the dynamic both in the run-up to and around the mini-budget last September, however. Back then, the currency weakened despite the market taking real yields higher, as the market baked in a premium across all UK assets.
“On the EURGBP, they note that! We don’t see such a cross-asset premium returning to UK markets but do think it more likely than not that the currency starts to weaken from here if the nominal yield repricing fails to keep up with the reassessment of the inflation outlook and brings down relative real yields. We like being long EURGBP.”
In terms of the technical, bearish patterns abound for EURGBP and they continue to allude to the fact that a fall towards the 0.8500 level could be the monthly and quarterly for the EURGBP pair.
Sentiment metrics are highly suggesting that more upside is likely as the majority of traders are stacked short against the EURGBP pair.
The ActivTrader platform shows that sentiment is very neutral with some 45 percent of traders now expecting more downside in the EURGBP pair despite the recent fall under the 0.8700 area.
Overall, this is still not bearish or bullish for the EURGBP pair because traders are typically on the wrong side of the trade. Most of the time fading retail sentiment works well for trading purposes.
EURGBP Short-term Technical Analysis
The four-hour time frame shows that the EURGBP pair is technically bearish over the short-term with the price trading under its key 200-period moving average, around the 0.8750 area.
Looking at bearish patterns, a large head and shoulders pattern has formed after the recent rejection. This could also hint at a retest of that very important 0.850 technical area.
EURGBP Medium-term Technical Analysis
The daily time frame shows that the EURGBP pair has recently failed at the upper end of its daily range, around 0.8900, and has now formed a huge head and shoulders pattern.
According to the trendline analysis the EURGBP pair is being drawn like a magnet to the 0.8600 level, as this is the location of the neckline of a massive head and shoulders pattern.
