The EUR/GBP pair wobbled today as the market reacted to the mixed Commitment of Traders (CoT) report released on Friday. The market is also waiting for important manufacturing PMI data from the eurozone and the upcoming BOE interest rate decision.
Hedge funds remain bearish on pound
On Friday, the Commodity Futures Trading Commission (CFTC) released the CoT report, which looks at the positioning of traders in the futures market. The report showed that speculators such as hedge funds increased their short positions to more than 6.7k in the previous week. This was an increase from the previous 1.4k. Worse, the number has been declining since it peaked at 31.5k in January 10 this year.
Analysts believe that sentiment on the pound has been waning because of the current coronavirus pandemic and the rising risks of a no-deal Brexit. Just last week, Boris Johnson said that the UK would not accept to some issues such as on fisheries and the European Court of Justice.
In the meantime, most speculators are bullish on the pound. The net long positions were 79.7k in the previous week. This was lower than the previous 87.2k. Perhaps, investors are optimistic that the region reopening will lead to more demand for the euro.
Eurozone manufacturing PMI eyed
The market is watching the final reading of the manufacturing PMI data from the eurozone. The data is expected to decline from the previous 44.5 to 33.6. This will be the worst reading ever recorded and is mostly because of the lockdown and social-distancing measures implemented by governments in Europe. The PMI from Germany, France, and Italy is expected to contract to 34.4, 31.5, and 30.0 respectively. The data will come two days after we received the UK manufacturing PMI, which dropped to 32.6 from the previous 47.8.
BOE decision eyed
Finally, the EUR/GBP market is also focusing on the upcoming BOE interest rate decision. Most analysts expect the bank to leave rates at the current near zero. Some also expect the bank to boost money supply by adding more than 200 billion pounds to the quantitative easing program that was announced in March. This decision will come a week after the ECB left rates unchanged and removed the cap of its quantitative easing.
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EUR/GBP technical outlook
On the hourly chart, we see that the EUR/GBP pair formed a three black crows pattern after peaking at 0.8800 on Friday. The price is now along the 61.8% Fibonacci retracement level. This retracement was drawn by connecting the highest point on April 21 and the lowest level on Thursday. Additionally, the pair appears to have formed a head and shoulders pattern and is now approaching the right shoulder. Therefore, I expect the pair to decline as bears attempt to retest the 50% retracement level at 0.8766.
This thesis will be invalidated if the pair moves above the 0.8800. This will send a signal that there are still bulls in the market who will want to push it higher.
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