The EUR/GBP pair fell heavily during the Tuesday session as the Euro continues to weaken overall. The pair is an interesting mix of buyer and seller, as the two economies are so interconnected. The United Kingdom sends over 40% of its exports to the European Union, and as a result the action in this pair can be very choppy at times. If you think about it, this makes sense as when the economy gets too poor in one area; it can’t help but affect the other one. In the case of British exports, it their biggest customer is broke and going into recession – it can’t help but slow down the UK economy as well.
With all of this being said, it looks as if the markets are only marginally impressed with the Greek “solution” as the Euro fell all around during the session. The fall is pressing the support area in the 0.83 level, and this area looks very important to me. The pair will be making a serious decision going forward on price at this level as it has been so supportive lately.
The floor at 0.83
The 0.83 support level looks as if it could open the door to the 0.80 level. The pair has a long running “median” at that level, and a return to it is hardly a stretch of the imagination. The European Union is certainly hurting, and the Pound will be favored to the Euro. However, there is only so far that the Euro can fall without hurting the Pound because of the above mentioned relationship. With this in mind, I would expect any move down to have a lot of choppy action in it if we do break below the 0.83 handle.
The candle closed at the very bottom of the range for Tuesday, so it suggests to me that there will be continued weakness in this pair. However, I need to see the pair close below the 0.83 on the daily chart to start selling. Once it does – I feel confident that we will eventually see 0.80 in this pair, but it could be a bumpy ride.