Bank of America has updated its quantitative read on the EUR/GBP currency pair, shifting its signals to a bearish posture based on trend analysis released by the bank on Monday. The technical picture, according to BofA, points to further downside risk if certain moving average thresholds are breached.
Specifically, technicians at the bank are watching the 200-day simple moving average. BofA notes that a move below that level this week could create technical momentum toward the 0.85 handle for EUR/GBP.
Option market activity appears to be lining up with that directional bias. The bank reported increased volumes of EUR/GBP puts in the lead-up to central bank meetings scheduled for this week, indicating greater hedging or bearish positioning by options participants. BofA also observed that overall skew in the EUR/GBP options market remained unchanged even as put activity rose.
Complementing the trend and options signals, BofA’s CARS - Cross-Asset Risk Signal - delivered an equity factor that tilts in favor of the British pound relative to the euro. The bank interprets that component of the framework as supporting the view that sterling has a more constructive outlook versus the euro at present.
While the consolidated signals point toward a bearish stance on EUR/GBP, the bank explicitly identified scenarios that could invalidate that outlook. Two risks were highlighted: the possibility of dovish guidance from the Bank of England, and the chance of Euro Area Consumer Price Index data coming in stronger than expected this week. Either development, BofA said, could undermine the current bearish thesis.
The bank’s communication combines technical trend analysis, options flow observations, and cross-asset factor signals to form its current posture on EUR/GBP. Market participants will be watching central bank communications and the Euro Area CPI release closely, given the bank’s identification of those items as potential inflection points for the pair.
Note: The analysis referenced was produced by Bank of America and released on Monday as part of the bank’s quantitative and cross-asset risk assessments.