EUR/GBP Price, Chart, and Analysis
- ECB hawkishness is being rowed back.
- A big swing in weekly retail trader positioning.
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EUR/GBP continues to give back some of its post-ECB meeting gains as various board members start to row back the central bank’s hawkish messaging last week by suggesting that the outlook for inflation in the bloc may not be as bad as markets fear. On Monday ECB President Christine Lagarde said that tighter monetary policy may not be needed as inflation looks likely to fall and stabilize, while Finnish central chief and ECB policymaker Ollie Rehn recently opined that ‘it is better to watch than be sorry as the old saying goes, or to progress gradually and step by step in normalizing the monetary policy’. These comments suggest that the markets may have got ahead of themselves in predicting higher rates and imminent quantitative tightening this year post-ECB meeting. Financial markets have been pricing-in around 40 basis points of rate hikes this year and the start of quantitative tightening in Q3.
While the US inflation release at 13:30 GMT is today’s focal point for traders, Friday’s UK GDP (December) release will be closely watched for clues as to how the UK economy performed as the country was hit by the Omicron wave. Sterling is currently supported by a hawkish Bank of England stance with the central bank expected to raise interest rates this year by over 100 basis points from the current rate of 0.50%. If tomorrow’s GDP report disappoints, these expectations may be pulled back, weakening the British Pound.
The IG retail sentiment data below shows a very sharp change in weekly EUR/GBP positioning, most likely driven by last Thursday week’s ECB meeting. The number of EUR/GBP net-longs hs been reduced by 36.5%, while the number of net-shorts shows a sizeable increase of 88%.
EUR/GBP currently trades either side of 0.8430 with little in the way of direction. Monday’s high at 0.8479 is not expected to come under pressure pre-GDP release, while this week’s double bottom at 0.8413 will provide the first line of support. Below here there is a cluster of old low prints all the way back down to 0.8383 which should hold any short-term sell off. With such a small range ahead of two important data releases, it may be better to wait and see what unfolds before entering into any trade.
EUR/GBP Daily Price Chart February 10, 2022
Retail trader data show 55.75% of traders are net-long with the ratio of traders long to short at 1.26 to 1. The number of traders net-long is 4.72% higher than yesterday and 36.55% lower from last week, while the number of traders net-short is 1.63% lower than yesterday and 88.00% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBP prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/GBP trading bias.
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