EUR/GBP - Doji indecision contradicts rising 2Y UK-German yield spread & falling risk reversals

• The Doji candle on the EUR/GBP daily chart signals indecision/bearish exhaustion.
• However, 2Y UK-german yield spread continues to rise, while risk reversals slide, suggesting potential for more losses in EUR/GBP.

Currently, the EUR/GBP is trading flat lined around 0.8773 levels. The Wednesday's doji candle indicates the sell-off from the Oct. 20 high of 0.9022 may have run out of steam. A positive action today would confirm the bullish doji reversal. Meanwhile, a break below the previous day's low of 0.8733 would signal continuation of the sell-off from 0.8773 levels.

2-year UK-German yield spread rises

• The spread currently stands at 123.4 basis points (bps); the highest level since August 2007.

Risk reversals drop

• The one-month 25 delta risk reversals fell to 0.10 on Wednesday; the lowest level since Oct. 5. The decline from the recent high of 0.425 signals the falling demand for EUR Calls (rising demand for GBP calls).

The yield spread may crash if the Bank of England (delivers hawkish hike) says it is in no hurry to normalize the policy.  

EUR/GBP Technical Levels

A violation at 0.8733 (previous day's low) would expose 0.8655 (May. 30 low) and 0.8649 (Jun. 8 low). On the higher side, breach of resistance at 0.8794 (5-DMA) would open up upside towards 0.8851 (10-DMA) and 0.8856 (Oct. 16 low).