A Fundamental and Technical Look at the EUR/GBP

Jun 5 • Forex Trading Articles • 5358 Views • Comments Off on A Fundamental and Technical Look at the EUR/GBP

On Monday, London markets were closed. However, even with no UK economic news on the screens, trading in the EUR/GBP cross rate was quite interesting. The pair was seen in the high 0.80 area during the morning session in Europe. A new up leg in the euro during the US trading hours also pushed EUR/GBP beyond the 0.8102 resistance. The move is in line with the short-squeeze seen in other euro cross rates since the end of last week. However, the risk for more QE from the BoE and the poor UK eco data of late made sterling an underperformer, even against the battered single currency. The EUR/GBP cross rate is showing a ST double bottom pattern on the technical charts. Sustained trading above the 0.8086/0.8102 area might be a first indication that the decline in EUR/GBP has slowed and the EUR/GBP cross rate has found a new balance. We amend our ST bias for EUR/GBP from negative to neutral.

Today, UK markets are closed for the Diamond Jubilee of the Queen. So trading in sterling will develop in thin market conditions. We look out whether the pair can sustain above the 0.8102 neckline.

From a technical point of view, the EUR/GBP cross rate is showing tentative signs that the decline is slowing. Early May, the key 0.8068 support was cleared. This break opened the way for a potential return action to the 0.77 area (October 2008 lows). Mid May, the pair set a correction low at 0.7950. From there, a rebound kicked in/short squeeze kicked in. The pair broke temporary above the MTMA, but at first gains could not be sustained. Continued trading above the 0.8095 area (gap) would call off the downside alert. A first attempt to do so was rejected two weeks ago and the pair returned lower in the range, but the 0.7950 range bottom stayed intact.

On Friday, the pair returned to the range top and 0.8100 area was regained yesterday. This break improved the short-term picture in this cross rate. The targets of the DB formation are seen at 0.8233 and 0.8254. So, the correction might still have some further to go. We look to sell into strength, but are in no hurry yet to add to EUR/GBP short exposure already at this stage.

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