EUR/GBP Set for Big Move Lower on Impressive Technical Formation

The euro fell sharply against the British pound on Friday after the EU's chief Brexit negotiator, Michel Barnier, said he was determined to strike a deal with the UK. A near-perfect Head and Shoulders pattern now indicates a move in EUR/GBP into the high 0.87s.

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Around 11am in London, transcripts of Michel Barnier’s comments to British MPs on Monday were published—transcripts in which Barnier expressed a desire for the EU to form an “unprecedented relationship” with the UK and for simplified checks on the troublesome Irish border.

Of the two Brexit affected currencies, it has been the pound, not the euro, that has consistently been sold off whenever the possibility of “no deal” has been raised; it was the pound, therefore, that made the best of Friday’s developments.

The pound gained handsomely across the board in the hours following the transcripts release. It did best relative to the euro, with EUR/GBP giving up 1 percent on its way down to 0.892 (GBP/EUR 1.121). The pound gained 0.8 percent versus the dollar, rising to 1.303, but had, by the time of writing, given back much of those gains following Friday afternoon’s higher-than-expected reading for US hourly earnings.

Barnier also told British MPs that he wanted to “establish the closest relationship possible with your country.”

“Let me repeat also that the no-deal scenario is not our scenario,” he added.

Since early August, EUR/GBP has been tracing out a textbook Head and Shoulders pattern (see daily price chart, above) and with Friday’s plunge, and likely close, below the pattern’s neckline (0.8954), the cross is likely to fall further. Per technical trading rules, a reasonable target for EUR/GBP is now 0.878, which matches the April-July average.


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