GBP/USD PRICE, CHART, AND ANALYSIS:
- Covid lockdowns a headwind for the Euro.
- Bank of England chief economist open to larger interest rate hikes.
- Hefty retail positional changes over the last week.
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A surge in covid cases across Europe is providing a major headwind for the Euro as new lockdown measures spark fears of lower growth across the single block. Last week Austria announced new measures against unvaccinated citizens, while the Netherlands, the Czech Republic, and Slovakia have also announced new restrictions in an effort to curb the rising spread of coronavirus. In addition, Germany has declared the fresh wave of the virus as a national emergency and has left the door open to new measures to prevent the ongoing spread. Any future partial or full lockdowns will weigh on economic activity across Europe and keep monetary policy looser for longer, weakening the single currency.
Data and Charts via The Johns Hopkins University
While covid new case numbers in the UK remain worryingly high, the government has so far refused to introduce any new restrictions, citing the rapid rollout of the vaccine booster program as a positive in preventing a further sharp uptick in case numbers.
The ongoing EU-UK post-Brexit talks seemingly made no progress over the weekend with one UK official pointing out that while progress has been made over the last five weeks of talks, ‘there are still issues to resolve’. While both sides do not want to trigger article 16, the UK remains adamant that this is still a live option unless the EU makes further concessions.
Last Friday, the Bank of England chief economist Huw Pill suggested that there is a growing case for a rate hike in December and he refused to rule out a 25 basis point increase if conditions warranted it. This slightly hawkish twist braced the British Pound against a range of currencies, including the Euro. EUR/GBP remains near a multi-month low and continues to test recent support. The daily chart highlights this weakness with the pair losing two big figures so far this month. Last week the 0.8385 level held a few bearish tests and this level needs to remain firm to prevent the pair from testing a double low around 0.8280 made in December 2019 and February 2020.
EUR/GBP DAILY PRICE CHART NOVEMBER 22, 2021
Retail trader data show 78.64% of traders are net-long with the ratio of traders long to short at 3.68 to 1. The number of traders net-long is 5.17% higher than yesterday and 42.68% higher from last week, while the number of traders net-short is 11.24% higher than yesterday and 50.79% lower 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 less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/GBP trading bias.
What is your view on EUR/GBP – bullish or bearish?
By Nick Cawley, Strategist, 22nd November 2021. DailyFX