The EUR/GBP pair fell again during the course of the session on Friday, as we continue to break down below the 0.70 level. However, below there we have a massive amount of support and therefore we ended up forming a hammer. The hammer of course suggests that there are buyers in this general vicinity, and as a result I believe that short-term traders will probably start going long here fairly soon. On the chart I have marked an area that I believe will cause quite a bit of resistance, somewhere near the 0.72 level. I think short-term traders will take advantage of this “dead cat bounce”, however we will more than likely see so much selling pressure above that if you were a little bit more of a longer-term trader, it’s probably easier to simply wait for a resistant candle above to start selling.
Two Soft Currencies
I believe at this point in time we are looking at two very soft currencies, and having said that we will continue to see a lot of volatility. On top of that, they are highly intertwined economies, so of course one cannot fall to significantly without the other trying to help or vice versa. With this, I recognize that the choppiness should continue, but you also have to keep in mind that the move needed to make profit in this market is much smaller than other currencies as the pip value is so much larger.
I believe that this market should continue to go lower given enough time, but without a doubt we are oversold. If we do get below the 0.69 level however, I feel the market then goes down to the 0.65 handle. I would be very surprised to see this market break out to the upside for any real significant move, perhaps only as high as the aforementioned move to the 0.72 handle. I believe that the volatility should continue, but then again should offer quite a bit of opportunities.
