AS OMICRON FEARS RECEDE, THE EUR/GBP RALLY IS AT RISK.
The EUR/strong GBP’s rally from a low of 0.8380 on November 22 to its current level near 0.85 is in jeopardy, owing to evidence that the Omicron variant of Covid-19 is more contagious and dominant than previous variants, but less deadly.
The news of Omicron spooked the markets on Friday and again this week, not helped by the CEO of Moderna, who was quoted in the Financial Times as saying that existing vaccines will be much less effective against Omicron than earlier strains of Covid-19 and that it would take months for pharmaceutical companies to mass-produce new variant-specific jabs.
However, it has now been reported that the new variant is not as lethal as previous ones, and that news of it may even be beneficial if it kills more lethal strains. That should help the Euro in general, and EUR/GBP in particular, which is still stuck in a downward-sloping channel and may struggle to break above the 0.85 level on a long-term basis.
DAILY TIMEFRAME (MARCH 26 – NOVEMBER 30, 2021) EUR/GBP PRICE CHART
THE SHADOW CABINET IN THE UK HAS BEEN RESHUFFLED.
On the other hand, the British Pound has largely ignored the opposition Labour Party’s senior shadow ministers being reshuffled. Three out of four recent opinion polls have shown Labour with a small lead over UK Prime Minister Boris Johnson’s ruling Conservatives. However, a General Election is still a long way off, and it could be preceded by reports of Conservative moves to replace Johnson.
Meanwhile, if the US Dollar recovers as attention shifts back to high US inflation and subsequent Federal Reserve rate hikes, EUR/GBP could benefit, weakening the Euro against other currencies as well as the US Dollar.
FOR THE EUR/GBP, THE SENTIMENT IS POSITIVE.
However, IG client positioning data suggests that the EUR/GBP will continue to strengthen. According to retail trader data, 65.00 percent of traders are net-long, with a long-to-short ratio of 1.86 to 1. The number of traders who are net-long is up 3.05 percent from yesterday but down 32.22 percent from last week, while the number of traders who are net-short is up 20.26 percent from yesterday and up 34.48 percent from last week.
We take a contrarian approach to crowd sentiment at DailyFX, and the fact that traders are net-long suggests EUR/GBP prices may fall. However, traders are less net-long today than they were yesterday and last week, and these recent shifts in sentiment suggest that the EUR/GBP may continue to rise despite the fact that traders are still net-long.
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