By: Christopher Lewis
EUR/GBP isn’t typically known to move rapidly. The pair is one that will typically grind in a zigzag pattern as the market is normally a very tight affair. However, when it does move it can be very sudden.
This is a result of the fact that the two economies are so closely tied together. The European Union is the destination for 40% of the exports coming out of Britain as an example. The Bank of England released minutes a few days ago that suggested that the central bank was even more dovish that originally thought. With this in mind, there has been a real reprising of the value of the Pound in general. The Euro may have been oversold against it – at least this is what the charts suggest.
However, it should be noted that the problems in the EU continue, and there is still a risk of defaults in the region. The fact that there are several other countries that are in trouble financially suggests that we will continue to revisit this situation a few more times. With this in mind, I am still not as connived by the rally as I would normally be.
0.85 Matters
The 0.85 level is a much more important resistance level than the 0.84 was. Granted, the 0.84 level held firm for quite some time, and the move since has been directly northbound, but the overall market looks at 0.85 with more confidence as based upon longer term charts.
.jpg "EUR/GBP Daily 2/24/12")
The area should provide a chance to see some kind of pullback. The first sign of real weakness at this area I am willing to sell. The thing about this area is that it is so binary. What I mean by this is that if I am wrong on a sell position – I know that something has changed in a significant way and the trend will now be up for a while. Knowing this, I am simply waiting for weakness to sell, and if I am wrong – I can go long at that point. However, with the recent run up, I am more prone to believe that the pullback that is needed should be coming. The real question at that point will be whether or not 0.84 acts as support if we fall.