- The EUR/GBP continues to construct against the British pound, as we start to head towards the European Central Bank meeting on Thursday.
- We are hanging around the 200-Day EMA, and it does make a certain amount of sense that we would see a bit of hesitation in this area.
- Between the central bank meeting and the technical analysis in this region, 0.86 does seem to be a magnet for price.
If we were to break down below the 0.8550 level, it’s likely that the market could fall apart, reaching the 0.85 level rather quickly, and then eventually grinding down to the 0.83 level. Ultimately, this is a situation where we will continue to see a lot of noisy behavior, but I do think that ultimately, we will have to figure out what to do about the bigger move.
Both Currencies Seem Very Comfortable
When you look at the overall picture for this pair, you must keep in mind that the ECB statement will have a lot to say, but we also have GDP numbers coming out of Great Britain on Friday. In other words, we could see a lot of back-and-forth in the near term, as we continue to see volatility. Once we get past the end of this week, liquidity could become an issue, and therefore it is essentially a range-bound market that is trying to coil up for the next big move, perhaps early next year. In the meantime, I look at this as a proxy for the strength of either currency against the US dollar, using a process known as “triangulation” to make currency decisions.
This process is deciding which way the US dollar is going to go, and then trying to figure out which direction the corresponding currencies will go. For example, if this pair starts to rise, then it’s obvious that if the US dollar strengthens, the British pound is weaker than the Euro, therefore you want to shore GBP/USD. On the other hand, if this pair rises and the US dollar is starting to lose strength, then you want to buy EUR/USD. Currently, it looks like both currencies are very comfortable where they are but coiled-up markets like this don’t stay this way forever, so even if you don’t trade this pair, this is a chart that will be very interesting and important to watch.
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