Brexit Deal Deadline & EUR/GBP Fee Forecast

Brexit Deal Deadline Overview:

• Will a Brexit deal be reached? EUR/GBP charges don’t appear to assume so. However any end result remains to be potential as UK PM Johnson heads to Brussels.
• EUR/GBP charges have struggled to realize traction in some way in current weeks, producing uneven buying and selling situations.
• Retail dealer positioning suggests a bullish bias to EUR/GBP charges.

EARLY WEEK | Brexit Deal Between EU and UK

Is that this the tip of the Brexit saga? For a number of weeks, it appeared {that a} deal can be reached so as to keep away from the worst case state of affairs ‘no deal, exhausting Brexit’ end result. And whereas it appeared extremely unlikely that both EU or UK Brexit negotiators and political management would stroll away from discussions as a consequence of competitors points or fisheries…right here we’re.

Failure to succeed in a free commerce settlement will convey concerning the ‘exhausting Brexit’ state of affairs feared, intensifying the detrimental influence of elevated tariffs and import taxes confronted by the UK. The financial backlash from Brexit can be harsh, make a coronavirus pandemic restoration all of the tougher.

UK Prime Minister Boris Johnson was reportedly on his method to Brussels to attempt to get a deal carried out, on the time this report was written.

Pair to Watch: EUR/GBP

EUR/GBP RATE TECHNICAL ANALYSIS: DAILY CHART (DECEMBER 2019 TO DECEMBER 2020) (CHART 1)

EUR/GBP charges stay rangebound, insofar because the sideways churn between 0.8865 and 0.9292 has continued regardless of breaking the rising trendline from the February and September swing lows (successfully the pandemic trendline). What appeared to be a chart sample explicitly favoring an end result that might produce extra British Pound energy – the symmetrical triangle bearish breakout – has not discovered important comply with by way of.

Consideration now turns to a possible bullish reversal within the context of the symmetrical triangle. EUR/GBP charges have rallied again to resistance, the rising trendline from the February and September swing lows. Reaching charges by way of stated trendline would improve the percentages of a check of vary resistance at 0.9292.

Nevertheless, it’s vital that merchants stay affected person. In spite of everything, EUR/GBP charges have been buying and selling sideways since late-June, and till the broader vary assist or resistance give manner, there’s little technical rationale for anticipating a substantial directional transfer.

IG Consumer Sentiment Index: EUR/GBP Fee Forecast (December 7, 2020) (Chart 2)

EUR/GBP: Retail dealer knowledge reveals 34.86% of merchants are net-long with the ratio of merchants quick to lengthy at 1.87 to 1. The variety of merchants net-long is 12.81% decrease than yesterday and 29.35% decrease from final week, whereas the variety of merchants net-short is 37.97% greater than yesterday and 10.80% greater from final week.

We usually take a contrarian view to crowd sentiment, and the actual fact merchants are net-short suggests EUR/GBP costs could proceed to rise.

Merchants are additional net-short than yesterday and final week, and the mix of present sentiment and up to date adjustments offers us a stronger EUR/GBP-bullish contrarian buying and selling bias.

Learn extra: Euro Rally Pauses as Brexit Lingers – Outlook Stays Bullish for EUR/USD, EUR/JPY Charges

— Written by Christopher Vecchio, CFA, Senior Forex Strategist