Time to buy EUR/GBP?

Last week I wrote an article on the Great British Pound and how the strength could start to crack. I also highlighted the opportunity that I would be looking into GBP/JPY shorts if we could see the right price action. Today I have a similar outlook but for EUR/GBP.

My theory behind the GBP weakening included the following:

1. Lower inflation figures: One of the big problems in the UK was inflation or rather stagflation, where growth slows or stops and prices continue to remain high. Since August 2024 inflation rates in the UK have remained sticky rising back towards 3%. But this could all change pretty soon. At the beginning of the month, the UK Labour Party Chancellor Rachel Reeves implemented plans to increase income taxes and decrease government spending. This could begin to have a knock-on effect going forward into May. Essentially this will constrict UK consumers as they will have less money to contribute to the economy.

2. Sentiment analysis: The Commitment of Trader reports highlighted to us that hedge funds have been selling GBP consistently over the past few weeks, perhaps in preparation for upcoming rate cuts from the Bank of England.

3. Macro data points: Some important macro data points highlight a potential slowdown coming, the services PMI data in particular contracted, with UK private sector output falling to its lowest level since 2020, which spells trouble for UK businesses.

We have not seen this reflected in the GBP pricing at the moment because other important indicators have been shocking to the upside. For instance, the recent retail sales number for March came in at 0.4 down from 0.7 but beating low expectations of -0.3%. So, the market took that as 'it's not too bad'.

So we have established that the GBP move is one that is coming...in my opinion. What I try to do is find a currency to trade it against. Now the USD has taken the EURO's role of being in the bin, maybe we could look to the EURO for the opportunity.

When tariffs rolled around we saw a significant shift in EUR/USD, in fact, it has risen over 13% since the start of the year. It looks set to continue under the right conditions. And if those conditions remain I want to buy the Euro, we could do this against the GBP.

The EUR/GBP has fallen for the past three weeks but remains in an upward trend on the weekly chart. The price is now on it's way to testing the breakout highs around 0.8450, and this could be a good place to get involved for me.

Please remember this is just my opinion, it is not to be taken as financial advice or a signal.

Diving deeper into the technicals, I like to find a market that is trending, and EUR/GBP is creating higher highs and higher lows on the weekly chart. Currently, the price is in the secondary phase, to me that means the price is pulling back in the upward trend.

In a weekly uptrend secondary phase, the daily chart will be forming lower lows and lower highs. What I need to look for is early signs that the daily chart trend is failing to make new lows. This could be the point at which I enter the market.

Right now the price has not set up to this condition, but it makes it to my trading watchlist to look at the daily closes. An alternative method could be to look for a trend line break, if I anchor the trend line to the high of Friday 11th April, with the formation point being the high on Monday 21st April, it creates a trend line resistance. If the price closes above this trend line I could enter on the early break with a lower risk to see if this is the turning point for the market.

If the price continues lower and breaks back below the current support of 0.8450, then the move may not be coming.

Always remember that markets are going to do what they are going to do regardless of where you buy and sell.

We can control the risk, and where we get in and out.

Over and out!