Mixed Technical Forecast For EUR/GBP Amid Brexit Fears
Blackwell Global | Mar 22, 2017 02:01AM ET
Key Points:
- ABC wave could spell near-term losses and medium-term gains for the pair.
- The long-term trend line should see the EUR/GBP back at 0.8879.
- Brexit negotiations will play a key role in the pair’s future.
In light of the escalating political tension between the EU and the UK, it may be worth taking a look at the EUR/GBP’s technical forecast in order to get a better feel of what could be next for the pair. Furthermore, we may need to take a look at what is due out on the economic data front in order to avoid being caught out by any rouge releases.
First and foremost, the medium-term outlook for the EUR/GBP looks to be moderately bullish, even if we are expecting some additional near-term downsides. Specifically, it currently looks as though we are mid-way through a corrective ABC pattern in the wake of the rather torrid downtrend which started late last year. As a result, we should see losses extend to the 0.8585 mark over the coming sessions before buying pressure returns to push the pair up to the 0.8879 level.
The argument for a near-term slip is supported by a number of technical instruments including, but not limited to, the Parabolic SAR and the MACD oscillator. More precisely, the Parabolic SAR retains its bearish bias whilst the recent signal line crossover on the MACD oscillator is suggestive of further downside risk. Moreover, it is expected that the turning point around the 0.8585 level eventuates as this coincides with the 100 day moving average which should provide dynamic support. Although, depending on fundamentals, the pair could test the long-term ascending trend line before reversing.
Once we have seen the EUR/GBP end its decline, the ensuing rally could lead to some sizable gains for the recently embattled pair. Such a rally is forecasted notonly as a result of the ABC wave but also due to the EMA bias and the long-term ascending trend line, shown above. However, as is also made clear in the above chart, the uptrend will run into trouble around the 0.8879 mark. Largely, we expect to see resistance hold here due to the presence of the 61.8% Fibonacci level and some rather robust historical resistance.
From a fundamental perspective, the main risk events for the EUR/GBP in the week ahead will come from the UK data. Notably, the bevy of retail sales figures due out could spark some solid buying and selling pressure which could either help or hinder the technical forecast. However, on the less tangible or measurable news front, anything to do with Brexit is also likely to be weighing on one or both sides of this pair. Furthermore, the seemingly escalating tension between the EU and the UK, specifically regarding the tug of war over London’s financial industry, could impact the EUR/GBP substantially so keep an eye out for any developments in the saga.
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Ultimately, the bias remains near-term bearish and medium-term bullish for this pair regardless of fundamental interference. Notably, the combination of a number of technical readings and the influence of the long-term trend line seem to be in agreement with this assessment. As a result, expect to see the bears run low on momentum as they approach the terminus of the B leg and keep an eye out for the eventual return of the bulls currently in the wings.
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