4 reasons to go long on EURGBP

The tax reform in U.S. is almost gone out of the focus. Traders and investors in financial markets will shift attention to the next period and future events, right after (or even before) the Christmas break. January is traditionally slower than November and December in the sense of economic growth and expansion. New Fed Chairman, Jerome Powell, is about to step in in March, but market players will pay a lot of attention on his possible speeches, trying to understand what to expect from him in the upcoming months and years. We expect a slide in USD comparing to major currencies at least. Euro could be one of the alternatives to the greenback in the sense of shifting speculative flows. Fundamentally, Eurozone economy continues to show strong performance.

British economy is also doing well, despite the ongoing talks about Brexit outcome. And I think that the pound is heavily undervalued. But BoE MPC officials continue to push the currency down, preventing any pick up in sterling momentum. They have their own reasons to do so, I described my suggestions in one of the previous posts. And please don’t tell me that central banks do not manipulate their currencies, and the exchange rate is influenced by open markets, demand and supply. What they do is create emotions and rumors in order to direct the trend. MPC Gov Carney holds a press-conference today 1:15 PM GMT and I think he will try to push GBP lower.

My point is that even if the USD will continue gaining strength, we could see GBP going south faster than EUR. And if the greenback will lose the ground in January, we could see appreciation of EUR faster than of GBP. We had the same story in September, by the way. Several analyst were predicting EURGBP to go to the parity till the end of 2017. It did not happen so far, but EURGBP is definitely in uptrend. The retracement, which we’ve seen recently, seems to be deep and healthy enough. So, I expect a continuation of EURGBP uptrend with new highs to be posted in the nearest 2-6 weeks.

First chart below has the weekly timeframe. Main message from technicals here is the bullish MACD divergence, confirmed by RSI divergence. The prices are supported at 0.8774 level (lowest close price since July 2017). Long term support of SMA89 indicates bullish continuation. So we expect EURGBP to come back to the blue rising channel. First target is the range of 0.9000 / 0.9020. Breaking this resistance will open road to local highs around 0.9250.

Daily chart below is more neutral rather than bullish. But there is a little sign for bulls: Yesterday daily close is above middle BB red line. This fact increases the chances for the pair to test upper range of BB at 0.8930. By the way, you may also check daily oscillator RSI14, which has crossed the level of 50% yesterday and also confirms bullish continuation.

EURGBP is traditionally a slow mover. Intraday traders do not like it too much due to low volatility. But this position could be profitable for mid-term traders, who can afford themselves to create a portfolio of assets and use buy-and-hold strategy.

Let the profit be with us!

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