EUR/GBP: Upside supported by worsening fundamental backdrop for the pound – MUFG

Analysts at MUFG Bank maintain a long EUR/GBP trade idea. They consider that shorting the pound against the euro is the better way to reflect the bearish GBP outlook. 

Key Quotes:

“EUR/GBP has been gradually trending higher since the start of May and we are now close to breaching the resistance trendline from the post-COVID high in March and the high toward the end of June. A breach of that resistance would open up a test of that June high of 0.9176.”

“It is certainly telling that EUR/GBP has been trending higher with levels over 0.9000 usually related to a risk-off period and hence we see this as the markets recognition of the worsening fundamental backdrop for the pound. This trade should therefore be a more reliable way to express our negative GBP view than versus USD.”

“Over the past week, EUR/GBP upside has been dampened by evidence of a stronger UK economic recovery while negative Brexit headlines have had little impact. The main risk to the trade idea is that market sentiment and positioning for the GBP is already very bearish.”