By: Christopher Lewis
The EUR/GBP pair fell on Wednesday as the Euro continues to struggle against many currencies around the world. The pair features two currencies that are inexorably tied together as the geographical proximity ensures quite a bit of trade between the two regions.
The United Kingdom has many of the world’s largest banks, and many of them are heavily invested in the European Union – or at least were. This is one of the things that is almost certainly pushing this pair lower: An exodus of British investment out of the EU. Also one would have to think that the lessening of deposits in many of the European countries could suggest that the British banks are doing much of that business. If you are a large French concern and need to deposit money in a British bank, you are selling this pair to make that transaction.
The British economy is hardly out of the woods though. The United Kingdom is currently going through fairly stringent austerity, and this of course will slow down the GDP of the UK. The pair is simply a battle of two really ugly currencies at the moment. The biggest thing that the Pound has going for it is that it isn’t the Euro. (This can be said about almost all currencies, except maybe the Hungarian Forint.)
Technicals in EUR/GBP
The 0.85 level breaking a few weeks ago was a significant event. The move signaled further weakness going ahead, and hasn’t disappointed so far. The 0.83 level has given way, and this looks like a classic move of fall, consolidate, and break lower. Because of this, the pair looks set to continue lower. The most likely target over time will be the 0.80 level, as it has been a fulcrum of sorts in this pair over the long term. The 0.83, 0.84, and 0.85 levels will all offer resistance now, and should provide selling opportunities if they are tested going forward.
.jpg "EUR/GBP Daily 1/5/12")
However, as this pair is notoriously choppy at times, I am more inclined to sell the rallies going forward as opposed to holding onto sell positions. The pair will often grind out only 40 pips a day, so traders will need to be patient going forward. As for buying – there is simply no real reason to contemplate that currently. Selling off of the 4 hour and 1 hour charts on weakness will more than likely be the way to go going forward.