By: Christopher Lewis
The EUR/GBP pair can be one that a lot of traders will avoid. This is mainly because it tends to “grind” quite a bit, and that will often turn the average trader away. However, it can often play out in a very technical fashion, and the support and resistance areas can be very obvious in this pair. It is one of the reasons I actually like this pair on the whole.
The two economies are highly interconnected, so this can cause a lot of the grinding that we typically see. This makes sense if you think about it, as they have so much trade between the economies and if one is doing poorly it can have a negative effect on the other one. A statistic that shows this relationship is that the UK sends over 40% of its exports into the European Union. If the EU is hurting, they aren’t buying as much of the UK’s products.
The pair currently sits just below the 0.84 level, and formed a hammer after the Friday action. This suggests that we are starting to see a bit of pressure building in this pair to the upside. The obvious buy signal is triggered once the 0.84 level is cleared, and it isn’t until we get over that level that I will think about buying. However, in this pair there are a couple of other things you can look at as will in order to help you make trading decisions.
By looking at the state of the EUR/USD and GBP/USD pairs, you can often use them to help triangulate between the three pairs which one of the three currencies are the strongest. The EUR/USD pair currently looks soft, but it is sitting on top of massive support, suggesting that the Euro might get a bit of a bump. The GBP/USD is doing the same thing, but seems like the falling in the pair is much stronger. This leads me to believe that the Euro will more than likely do better out of the two, and this would fare well for the bulls in the EUR/GBP pair.
Conversely, a break of the bottom of this hammer would be bearish, and send this pair down to the 0.83 level. On the bullish breakout mentioned above, I am looking for the 0.85 level to continue to hold the pair down. With this in mind, I feel the pair will be stuck between 0.83 and 0.85 for the next few weeks.