Pound sterling (GBP) outlook is strained as Article 16 fears ignite


EUR / GBP price, chart and analysis

  • EU / UK relations continue to deteriorate.
  • Sterling is supported for now, but fears over Article 16 persist.
  • Retail traders avoid EUR / GBP.

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According to numerous media reports, the EU could suspend the Brexit trade deal if the UK triggers Article 16, as has been suggested, as relations between the two sides continue to deteriorate. Article 16 allows goods to move between the Republic of Ireland and Northern Ireland without checks, although goods from the UK entering Northern Ireland are subject to checks. While the EU and UK say they have made concerted efforts to break the current deadlock, neither side is currently willing to change their position, leaving a formal triggering of Article 16 a very possibility. real.

Any triggering of article 16 by the UK and retaliatory action by the EU would make the pound vulnerable to further decline. The pound has fallen broadly over the past few days after the Bank of England disappointed markets last week by leaving interest rates unchanged. Before the BoE meeting, markets had valued a 50/50 probability that the UK base rate would be raised by 15 basis points to 0.25%. The subsequent reduction in rate hike expectations saw the pound slide to multi-week lows against a range of currencies.

Retail data – see below – shows that traders not only reduced their net long positions during the week, but also sharply increased their net short EUR / GBP positions over the same period. After hitting an almost two-year low on October 26 at 0.8403, EUR / GBP climbed back to just 0.8600 before settling around 0.8575 today. Any further wait for Section 16 to be triggered by the UK could see the pair retest the late September high at 0.8659 before moving towards 0.8712.

EUR / GBP Daily Price Graph November 8, 2021

Retail merchant data spectacle 50.54% of traders are net-long with the ratio of long / short traders of 1.02 to 1. The number of net-long traders is 1.93% higher than yesterday and 46.86% less than last week, while the number of net-short traders is 7.81% higher than yesterday and 84.82% more than last week.

We generally take a contrarian view of crowd sentiment, and the fact that traders are net long suggests that EUR /GBP prices could continue to fall. However, traders are shorter than yesterday and compared to last week. Recent sentiment shifts warn that the current EUR / GBP price trend may soon be reverse higher despite traders staying net-long.


What is your take on EUR / GBP– bullish or bearish ?? You can let us know via the form at the end of this article or you can contact the author via Twitter @ nickcawley1.

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