EUR/GBP is at the start of a downtrend, according to Forex.com’s market analyst Fawad Razakzada, and it will probably remain in a bearish mode for the foreseeable future.
The twin fundamental factors of rising political risk in Europe and diffusing political uncertainty in the UK have turned the tables on the pair, with increasing strength for the Pound and weakness now for the Euro.
Recent positive data from the UK, which showed a surge in Manufacturing and Industrial Production has helped Sterling gain the upper hand whilst continued caution from European Central Bank (ECB) officials despite positive data in the Eurozone has undermined the Euro.
“The UK has already opted to leave the European Union and now there is a danger that others might join them, too. Indeed, the political focus is towards mainland Europe with elections in France, Germany and Netherlands all coming up this year.
“Concerns over France leaving the Union is the biggest threat, with Marine le Pen’s National Front party gaining popularity. These concerns may keep a lid on the euro, even if we see further improvement in Eurozone data,” says Razakzada.
On a technical level, Razakzada says that as long as the exchange rate remains below 0.8700, and therefore within the bearish channel it is more likely to fall to 0.80 than to revisit 0.90.
“On the downside, the key level that needs to break down is at 0.85. Once this condition is settled then the EUR/GBP could head towards some of the support levels shown on the chart (in blue) with the shaded region around 0.8305-35 being the immediate bearish objective,” says the analyst.
