DouglasDavison

[EURGBP] Short-term- EUR/GBP to stay above 0.85 – Danske Bank

FX:EURGBP   Euro / British Pound
Mr. Arne Lohmann Rasmussen, chief analyst at Danske Bank, notes that the EUR/GBP cross moved to the lower end of the 0.85-0.87 range after PM Theresa May’s statement yesterday evening.

“For now, we expect EUR/GBP to stay above 0.85, but if the negotiations are successful and May and Corbyn can find common ground, we could soon see a move below 0.85. However, this is easier said than done.”

“When a deal is agreed upon, we expect EUR/GBP to move down to 0.83. In case of no deal Brexit, we expect a move towards parity. A long extension would also be slightly GBP-positive and we could see EUR/GBP trade in the 0.84-0.86 range.”

1. Fundamental analysis .

UK Lawmakers failed again yesterday on backing any kind of a majority for any style of Brexit option which stripped the sterling bulls of ammunition once again. However, there is still a bias towards a customs union proposal, an option that was losing by just three votes.
PM May offered a statement following the meeting which has told the nation that she is seeking out Corbyn's support before she heads to Brussels for a further extension, lifting sterling on the hopes of a soft Brexit - However, this leaves sterling exposed to bad news and the cross hangs in the balance.
Meanwhile, Eurozone core inflation eased further to 0.8% m/m in March and just 0.2 percentage points away from the all-time low which leaves the ECB under pressure to respond to a renewed risk of disinflation amid slow pace of growth.

2. Technical analysis

According to the harmonic patterns - Gartley and Butterfly - We have shown two potential reversal points for EUR/GBP .
With Gartley , the reversal point will be tracked at around 0.867. And with the Butterfly pattern , the point could be at around 0.841. Combined with the current fundamental scenario, it is most likely that this currency pair will trade sideway between 0.86 and 0.84 in near future.
For now, we have a reason to believe that the Euro will be traded at the lower end of 0.841 since the RSI 14 still lies within its “comfort zone” in a bearish trend . After the price touched the Butterfly pattern’s reversal point, there is a very high chance that the Euro will skyrocketing to 0.867 and continue to trend sideway.

Conclusion:
Traders should continue looking for reversal signals, and be cautious of the market at this time since Brexit is still looming around. But for hedging traders, this could be the perfect time to harvest profit.

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Source: Fxstreet
Idea inspired by Trader FxCanli
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