EUR/GBP: euro-pound sterling positioning as Brexit talks resume

EUR/GBP price outlook

• EUR/GBP price action has gyrated sideways within a rough 200-pip trading range recently
• Brexit talks scheduled to resume this week could spark volatility in the euro and pound sterling
• EUR/GBP retail FX trader positioning has turned less net short over recent sessions

EUR/GBP price action might be ripe for heightened market activity this week as Brexit talks resume between EU/UK trade negotiators. Evidence of this is already being indicated by big shifts in EUR/GBP trader positioning according to recent IG client sentiment (IGCS) data.

IG client sentiment: EUR/GBP daily price chart (August 2019 to August 2020)

EUR/GBP sentiment has turned less bearish over the last several trading sessions, but is now roughly mixed on balance at 45% net long. Retail FX traders have not only increased EUR/GBP net long positioning by 17% over the last week, they have also unwound net short positioning by 8% during the same time frame. Fluctuations in EUR/GBP positioning has resulted in a net 3% increase in open interest.

We typically take a contrarian view to crowd sentiment, and the fact that majority of traders remain net short suggests EUR/GBP may continue to rise, but recent changes in positioning warns that the current price trend may soon reverse lower.

EUR/GBP daily price chart (3 March 2020 to 19 August 2020)

The EUR/GBP is now hovering comfortably above the £0.9 price zone as EUR/GBP coils between its series of lower highs and higher lows since June. There could be potential for EUR/GBP price action to continue bouncing back and forth between these recently defined technical barriers. Spot EUR/GBP is perched below its 50-day moving average (MA) at the time of writing, however, and might indicate EUR/GBP bears are currently in control.

Topping this level, which is also underpinned by month-to-date highs, might suggest a shift in bias tilted to the upside. Perhaps this could open the door for a test of the declining trendline and July swing highs. On the other hand, breaching technical support provided by the £0.9 handle could motivate EUR/GBP bears to make a larger push lower toward the 23.6% Fibonacci retracement highlighted on the chart above.