eu referendum watch brexit not necessarily a positive outcome for eurgbp 2658232016

Next week could be a big one for the EUR/GBP due to the large number of market-moving economic data from both the UK and the Eurozone, and the ECB’s policy meeting on Thursday. In addition, traders are still trying to figure out that if Britain were to vote to leave the EU, would this necessarily be a bad or good outcome for the economy in the long run. If bad for the UK, it could be just as bad or even worse one for the Eurozone. Therefore, should the EUR/GBP pair continue pushing higher? Well, this week the cross has actually dropped, not because the GBP had anything to do with it, but rather the euro weakened across the board. The EUR/USD, for one, could not break through the 1.1450 barrier after several attempts and as a result the pair dropped for a time to below 1.1250 as the market tried to find the fair value amid the changing expectations about the next Federal Reserve rate increase due to the disappointing US macroeconomic data.

But as far as the EUR/GBP is concerned, these are among the potential market moving events to watch out for next week:

Tuesday: German ZEW Economic Sentiment
Wednesday: UK Average Earnings Index, Claimant Count Change and Unemployment Rate
Thursday: UK Retail Sales; ECB policy decision and press conference (nothing significant likely to be announced, but Mario Draghi could say something surprising at the presser)
Friday: Flash Eurozone manufacturing PMIs

Depending on the outcome of the abovementioned fundamental events and/or any significant changes in the UK-EU referendum opinion polls, the EUR/GBP could move sharply next week. Indeed, from a technical point of view, the EUR/GBP’s strong upward trend may be about to end, and the long-term bear trend could resume. Well, at least that’s what the weekly chart of the cross suggests might happen.

As can be seen, below, the EUR/GBP has reached a significant area of resistance between the 0.80 and 0.81 area. For a start, 0.80 is a psychological level. A lot of trading tends to occur around such levels, often with good volumes. Note, for example, how the EUR/GBP traded around the 0.70 handle where it created a significant medium-term bottom last year. Note also how long price took to form that low. Will it similarly take a long time to form a potential top here? Let’s wait and see. In addition to the important of the psychological level, the EUR/GBP has also reached the top of its long-term bearish channel, and previous resistance. What’s more, the previous attempts to break above the 200-week moving average did not last very long. Will this be another such occasion?

Going forward, a breakdown below key short-term support at around 0.7930, which was previously resistance, could lead to a significant withdrawal of bids and a sudden move lower. A potential fake out move here on the other hand would suggest that the sellers are lacking in confidence, in which case the short-term bullish trend could resume for another bounce towards the noted 0.80-0.81 area again. Thus it may pay to be patient and wait for confirmation before making a decision around the 0.7930 level.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.