06.21.2016

Pre Brexit EUR/GBP Key Chart Analysis (by Steve Jarvis, TraderMade)

The outcome of the impending UK referendum on whether to “remain” or “leave” the EU will not just important for Sterling, but also for the Euro.  If the outcome is for the UK to “remain” as part of the European Union, then the future course of EUR/GBP could largely follow existing trends, whereas a “leave” result involves a much greater degree of uncertainty.  Much has been made of the “Sell Sterling” argument should a “leave” result be returned, but such a result may also be broadly negative for the Euro (as it could increase pressures elsewhere in Europe), so while EUR/GBP may still go up, losses for GBP may be smaller than against the USD.

At the current time, the UK referendum polls are indicating that the “remain” and “leave” votes are neck and neck, whereas the odds being offered by leading UK book-making firms are implying the “remain” outcome is most likely.  The lack of a likely clear outcome at the current time is reflected within the EUR/GBP chart which has effectively been range-bound for a few weeks, rather than moving in a clear direction.

A long-term EUR/GBP chart going back to the Euro inception in 1999 is shown below.  The chart actually shows 20 years of data, please note that for the period 1996-1998 it is synthetic data.

It can be seen that EUR/GBP has traded within a clear bearish channel since peaking at .9801 in December 2008.  The recovery phase from the 2015 base has so far stalled between the 38.2% Fibonacci retracement of the .9801-.6936 multi-year decline and the top of the aforementioned bearish channel.  Note also that the MACD indicator (lower sub chart) retains a succession of lower tops & bottoms and unlike the period back in 1998-2001 is not displaying divergence.  Although that indicator is rising at the current time, it remains below zero, indicative of an underlying bearish trend.

If the UK book-makers are correct and the result of the referendum is for the UK to “remain” in the EU, then it would appear that the most likely outcome for EUR/GBP over coming months (and possibly the next year or so) is for a return to weakness, eventually taking out the 2015 low at .6936 and heading towards the key .6546 / .6537 lows recorded in 2004 / 2007.  Those lows are close to the 76.4% Fibonacci retracement of the entire 2000-2008 advance which is at .6656, an eventual breakdown of which would increase the likelihood of a long-term return towards the all-time traded low from 2000 at .5684.

Accurately predicting where EURGBP may go on a “leave” result appears more difficult.  While the start of a return towards the all-time high from 2008 at .9801 cannot be ruled out, there are a number of resistance areas ahead of there which could prove to be hard to break.  In the event that the first major resistance area around .8116-.8142 (recent high / top of multi-year bear channel) is cleared, then we would expect a move towards the .8707-.8812 region (61.8% retracement of .9801-.6936 / 2013 key lower top), with .9083-.9125 (2011 high / 76.4% retracement) the next key resistance area above there.  A break of the latter does increase the chances of an eventual return towards .9801, but there will still be the October & March 2009 lower tops at .9411 / .9478 to contend with.

Polling takes place this coming Thursday, 23rd June, between 7am & 10pm UK time (6gmt-21gmt), with the Electoral Commission estimating a breakfast time announcement on Friday 24th June.

 

 

This article is an extended commentary piece from the FXNavigator forex research service.
The FXNavigator service provides intraday analysis of 42 currency markets with technical and economic research being updated multiple times per day.
The service also includes fully interactive real-time FX charting utilizing TraderMades exclusive database of more than 40 years of forex data.
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