EUR/GBP – Is the rally stalling?

Parliament’s Brexit vote fails to lift sterling

Efforts by MPs to prevent a no-deal Brexit may have fallen short on Tuesday but they did manage to pass legislation by a single vote to make life far more difficult for the next PM to bypass Parliament altogether.

Teams on both sides will undoubtedly be straight back to work trying to find any loopholes or centuries old precedence that will put them on the front foot ahead of the end of October deadline, with yesterday being a swift reminder that we’re all about to become experts on Parliamentary procedure again.

Interestingly, sterling traders were not encouraged by the vote which instead sunk to its lowest level since mid-January against the euro. This morning’s GDP and manufacturing data for May provided a small lift for the pound but that was short-lived, with any gains being quickly reversed.

More bad times ahead for the pound?

While the pound has had a torrid time against the euro since early May, there are signs of exhaustion appearing. EURGBP has entered into a region that has previously been a key rotation point for the pair and once again it seems we’re seeing the rally run out of steam.

EURGBP Daily Chart

OANDA fxTrade Advanced Charting Platform

We’re seeing divergences on both the stochastic and the MACD, with neither confirming the highs being made in price. While this isn’t a reversal signal in itself, it may suggest the rally will continue to face challenges. Of course, the chart itself could have told you this, with price action dipping shortly after making a new high on the last couple of occasions.

EURGBP 4-Hour Chart

 


On the 4-hour chart above we can see that the recent gains have broadly tracked the 55-89 moving average band higher which currently intersects nicely around 0.8950. Should price break below here, it will be interesting to see whether this acts as a catalyst for further losses, with stops potentially being triggered.

 

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.