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EUR/GBP: sentiment favouring upside

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 24, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Guatemala) - EUR/GBP has been staging a comeback since October highs at 0.7492, but there is still plenty of work to do for a break of the channel resistance at 0.7490.

    The fundamentals support the cross higher while markets starts to price in that the BoE resembles more of the EZ than the US in respect of a recovery and monetary policy requirements and concerns of a Brexit have also started to weigh in.

    "Still, we do sense that perhaps the negative pound sentiment might have become a little excessive or perhaps the scale of selling in relatively illiquid markets has over-extended to the downside. Our short-term models may well be skewed indefinitely given ‘Brexit' risk may be difficult to capture, but certainly based on our valuation models, any easing of ‘Brexit' fears may well prompt a sharp reversal of recent pound weakness," explained Derek Halpenny, analyst at Bank of Tokyo Mitsubishi.

    EUR/GBP levels

    Technically, Karen Jones, chief analyst at Commerzbank explained that the daily chart continues to indicate that this is the end of the move (wave 4 on the daily chart). "It is also the 61.8% retracement of the move down from October and directly above we find the 55 week ma at 0.7306."

    Jones added, "The intraday Elliott wave counts are contradictory (currently the market is holding the 200 day ma at 0.7205). Major resistance is not encountered until the 2013-2015 downtrend at 0.7450, where we expect to see failure. We will maintain our longer term bearish view while capped here."
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