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EUR/GBP Forecast: Bank of America’s Ominous Bearish Signal as Option Flow Shifts Dramatically

Quantitative analysts at Bank of America have issued a significant bearish signal for the EUR/GBP currency pair, marking a notable shift in institutional positioning and market sentiment for early 2025. This development emerges as option flow data reveals substantial changes in derivatives market activity, potentially foreshadowing directional moves in one of Europe’s most closely watched currency crosses.

EUR/GBP Technical Analysis Reveals Bearish Momentum

Bank of America’s quantitative research team has identified multiple concerning signals within the EUR/GBP technical structure. The currency pair recently broke below its 200-day moving average, a critical long-term support level that had held firm throughout much of 2024. Furthermore, momentum indicators including the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) have entered bearish territory, confirming the weakening technical picture.

Historical data analysis reveals that similar technical breakdowns in the past have preceded sustained directional moves. The current price action suggests potential support levels at 0.8400 and 0.8320, with resistance now established at the previous support-turned-resistance level of 0.8520. Market participants should monitor these levels closely for confirmation of the bearish thesis.

Option Flow Data Signals Institutional Positioning Shift

Derivatives market activity provides compelling evidence supporting the bearish outlook. Recent option flow data shows a notable increase in put option volume for EUR/GBP, particularly in the 1-3 month expiration range. This indicates institutional investors are increasingly hedging against or positioning for euro weakness relative to the British pound.

The put-call ratio, a key sentiment indicator, has shifted decisively in favor of puts, reaching levels not seen since the third quarter of 2023. Additionally, volatility skew analysis reveals higher implied volatility for downside protection, suggesting options traders are pricing in greater risk of euro depreciation than appreciation in the coming months.

Quantitative Models and Historical Precedents

Bank of America’s quantitative models incorporate multiple data streams beyond traditional technical analysis. These models analyze:

• Cross-asset correlations with European and UK equity markets
• Interest rate differentials between the European Central Bank and Bank of England
• Macroeconomic surprise indices for the Eurozone and United Kingdom
• Positioning data from CFTC commitment of traders reports

Historical analysis shows that when these quantitative indicators align in their current configuration, the EUR/GBP has experienced directional moves averaging 3-5% over the subsequent three-month period. The current signal strength ranks in the 85th percentile of historical observations, suggesting above-average conviction in the bearish outlook.

Fundamental Drivers Behind the Currency Pair Movement

Several fundamental factors contribute to the evolving EUR/GBP dynamic. The European Central Bank maintains a relatively dovish stance compared to the Bank of England, creating interest rate differentials that favor sterling. Additionally, economic growth projections for 2025 show the UK economy potentially outperforming the Eurozone, particularly in services and technology sectors.

Political developments also influence the currency pair. Upcoming European Parliament elections and ongoing trade negotiations create uncertainty for the euro, while UK economic policy appears increasingly stable following post-Brexit adjustments. These factors combine to create fundamental headwinds for EUR/GBP in the medium term.

Comparative Analysis with Other Major Currency Pairs

This comparative analysis reveals that EUR/GBP represents one of the clearest directional plays among major currency pairs, according to institutional positioning data. The divergence between euro and pound sentiment has widened significantly in recent weeks, creating potential trading opportunities for informed market participants.

Market Impact and Trading Implications

The bearish signal from Bank of America’s quantitative team carries significant implications for various market participants. Currency traders may consider adjusting their EUR/GBP exposure, while multinational corporations with euro-pound currency risk should review their hedging strategies. Portfolio managers with European equity exposure might evaluate currency-hedged positions to mitigate potential translation losses.

Historical volatility patterns suggest that currency pairs experiencing similar quantitative signals have shown increased volatility in the 30-60 days following the signal. Market participants should therefore prepare for potentially larger daily moves and consider appropriate position sizing and risk management strategies.

Conclusion

Bank of America’s quantitative analysis presents a compelling bearish case for EUR/GBP, supported by shifting option flow data, technical breakdowns, and fundamental divergences. The convergence of these factors suggests potential euro weakness against sterling in the coming months. While currency markets remain inherently unpredictable, the weight of quantitative evidence warrants careful consideration by all EUR/GBP market participants as they navigate the evolving 2025 currency landscape.

FAQs

Q1: What specific option flow changes triggered Bank of America’s bearish signal?
The analysis identified increased put option volume, particularly in 1-3 month expiries, and a significant shift in the put-call ratio favoring downside protection. These changes suggest institutional investors are increasingly positioning for or hedging against euro weakness.

Q2: How reliable are quantitative signals for currency pair forecasting?
Quantitative models have demonstrated varying reliability depending on market conditions. Bank of America’s models show approximately 65-70% accuracy for directional signals over three-month horizons when multiple indicators converge, though past performance doesn’t guarantee future results.

Q3: What time horizon does this EUR/GBP forecast cover?
The analysis primarily focuses on the 1-3 month horizon, though some indicators suggest potential trends extending through the first half of 2025. Currency forecasts typically have decreasing accuracy beyond three months due to changing fundamentals.

Q4: How does this analysis compare to other major bank forecasts for EUR/GBP?
Several other institutions have expressed cautious or neutral views, making Bank of America’s bearish stance relatively distinctive. Divergence among analyst views often indicates genuine market uncertainty and potential trading opportunities.

Q5: What key support levels should traders monitor for EUR/GBP?
Technical analysis identifies 0.8400 and 0.8320 as critical support levels. A sustained break below these levels would confirm the bearish technical structure and potentially trigger further selling pressure.

This post EUR/GBP Forecast: Bank of America’s Ominous Bearish Signal as Option Flow Shifts Dramatically first appeared on BitcoinWorld.

– Written by


Frank Davies

STORY LINK GBP/USD Forecast: Pound Sterling Steady Near $1.37 Ahead of BoE

The Pound to US Dollar exchange rate (GBP/USD) traded sideways on Tuesday, with limited conviction on either side as a partial US government shutdown disrupted the flow of economic data.

At the time of writing, GBP/USD was hovering around $1.3667, little changed from the opening levels of the session.

The US Dollar (USD) struggled to gain momentum after confirmation that January’s key labour market releases would be delayed due to the ongoing government shutdown.

The US Bureau of Labor Statistics confirmed that the non-farm payrolls report and associated employment data will not be published until funding is restored, likely pushing the release into next week at the earliest.

The disruption left USD traders cautious, with many reluctant to take fresh positions amid the lack of timely economic signals.

The Dollar also faced pressure from an improvement in global risk appetite, following President Donald Trump’s decision to lift tariffs on India. The easing of trade tensions reduced demand for traditional safe-haven assets, further weighing on the ‘Greenback’.

The Pound (GBP) meanwhile traded steadily, showing resilience against most major counterparts.

Sterling activity remained subdued as investors positioned ahead of the Bank of England’s upcoming policy decision on Thursday. While interest rates are widely expected to be left unchanged, the recent uptick in UK inflation has prompted speculation that the BoE’s guidance could strike a slightly more hawkish tone.

GBP/USD Forecast: Can US Services PMI Revive the Dollar?

Looking ahead, volatility in the Pound to US Dollar exchange rate could pick up following the release of the latest ISM services PMI.

If January’s services data mirrors the resilience seen in the manufacturing sector, it could lend the US Dollar support by reinforcing expectations that the Federal Reserve will delay rate cuts well into 2026.

Attention will also turn to the UK’s final services PMI. Confirmation that activity expanded to a fresh 21-month high at the start of the year may offer the Pound some modest support, although markets are likely to remain sensitive to broader risk sentiment and US political developments.

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TAGS: Pound Dollar Forecasts

Created on February 03, 2026

The US dollar continues to see a lot of noise, as traders have recently tried to push the Federal Reserve into perceived rate cuts coming quickly. This is something the trading community has been wrong about for some side.

USD/JPY

The US dollar has risen slightly against the Japanese yen, gaining about 0.5% during the trading session on Monday as we are now threatening the 50-day EMA.

Quite frankly, I think the bulk of traders out there got caught on the wrong side of the Federal Reserve guestimate of the month. We’ve seen this multiple times previously where the market starts getting hyper-excited about the idea of interest rate cuts. While we do see them recently, the reality is they’re not going to be as quick as people think.

Furthermore, it’s not as if the Federal Reserve balance sheet is going to suddenly explode. The nominee, Kevin Warsh, is somebody who’s been a little bit hawkish over the longer term, so he probably brings a little bit of uncertainty to traders instead of the prayers of loose monetary policy that we’ve seen over the last couple of years that the market’s consistently gotten wrong.

Bank of Japan Constraints

On the other side of this equation, we have the Bank of Japan, which really can’t raise rates much, if at all, because they have too much debt. So, with all of that being said, I do think we eventually creep our way back towards the 158-yen level again, collecting swap along the way.

I like the idea of buying dips; I don’t necessarily want to chase this trade. But you’ve been watching me for months be bullish on this pair despite the fact that we saw some type of intervention. The reality is, it looks like we’re going to try to make our way back up to this battlefield again.

Want to trade our USD/JPY forex analysis and predictions? Here’s a list of forex brokers in Japan to check out.

Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

Created on February 03, 2026

The euro did try to rally a little bit during the early hours here on Monday but simply cannot hang onto gains at the moment as the Federal Reserve Chairman nominee has the markets rethinking things.

EUR/USD

The euro did try to rally a little bit during the early hours here on Monday but then turned around to show signs of weakness as we are testing the 1.18 level, an area that is going to be important for our next move.

The 1.18 level is an area that I think a lot of people will be watching and with that being said I think this is a market that is going to continue to play based on the central banks around the world specifically the European Central Bank which is doing nothing and then the Federal Reserve which of course has just got itself back into the headlines due to Kevin Warsh being nominated.

Central Bank Impact and Technical Levels

That’s a little bit more conservative than I think people thought was going to be the case. With that there is some doubt as to how many Federal Reserve rate cuts there are going to be and with that I think we have to look at this as a market so that if it breaks down below the 1.18 level we could be re-entering consolidation. This would be typical euro/dollar behavior to be honest.

If we turn around and take out the 1.1875 level above, then I think you have a real shot at this market rallying perhaps to the 1.20 level followed by the 1.23 level which is what the implied move from the consolidation range suggests.

Lots of things are going on and then on top of that we have the employment figures later this week.

Ready to trade our EUR/USD analysis and predictions? Here are the best European brokers to choose from.

Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

The EURJPY pair failed to breach 184.00 barrier, obstructing the attempts to resume the bullish trend, which forces it to form sideways trading by its fluctuation near 183.55.

Reminding you that the bullish scenario will remain valid by the stability of the trading above the bullish channel’s support at 182.75, confirming the importance of surpassing the barrier, to ease the mission of recording extra gains by its rally towards 184.85 and 185.45, while breaking the bullish channel’s support and holding below it will force it to form strong bearish waves to suffer several losses by reaching 181.50.

The expected trading range for today is between 183.00 and 184.00

Trend forecast: Sideways