The pound has the potential to gain some ground against the euro for now - Nomura

Technical Analysis

Author: Justin Low | eur

Nomura recommends a short in EUR/GBP after the pound's recent losing streak against the single currency

EUR/GBP D1 15-07
The pound has struggled against the euro since the middle of May as EUR/GBP bounced from around 0.8500 to test the 0.9000 handle over the past few sessions. The latter is proving to be a bit of a tough spot for buyers to break above and Nomura is saying that this may be as good as it gets for the pair for the time being.

In a note, the firm's analyst, Jordan Rochester, argues that "the pound already trades at crisis levels" and will struggle to go lower than this. Adding that:

"A no-deal Brexit is a risk and would certainly make new lows in GBP, but that's still a few months away and we do not expect the market to assign a high hard Brexit premium until parliament returns after the summer break in September."
Also noting that high inflation expectations and CPI being close to the BOE's target will keep the central bank on the sidelines for now. The firm says that they would be looking to go short pound again after the summer is done.

Their argument above is certainly fair given we'll see the UK parliament observe a recess period from 25 July to 3 September. But even so, keep your eyes and ears peeled as we'll still surely hear from either Johnson or Hunt on Brexit during the break.

Despite some room for pause in the whole Brexit drama, I still highly doubt traders would be chasing substantial gains in the pound. The safer bet - in my view - at this point remains to sell the currency on rallies given how nothing has changed in the Brexit equation so any scope for gains in the quid will likely be short-lived.

Perhaps we can see some room for correction in EUR/GBP after ten consecutive weekly gains, but I reckon if we see price start moving back towards 0.8800 and the 200-day MA (blue line), buyers will be keen to jump back in at those levels.

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