The Euro and the pound continue to lock horns in a relatively fairly matched battle near the 0.8550 level.
EUR/GBP
The Euro and the pound continue to lock horns in a relatively fairly matched battle near the 0.8550 level. I'm watching this market because we had recently dropped pretty significantly, bounced to test the 50% Fibonacci retracement level and the 50-day EMA as a result.
And ultimately, I think this means that you have a scenario where technical traders may have entered the fray. The question is now: do we get any type of follow-through? This market is still asking questions about interest rates, but also the energy supply that may or may not be coming to the UK and the EU. As I record, missiles are flying in the Gulf again.
If we do, then you have the possibility of the market really taking off to the downside, perhaps to the 0.85 level, maybe even revisiting the 0.8450 level where we had bounced from.
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Technical Resistance and Yield Differentials
Rallies at this point in time will have to contend with the 50-day EMA, which of course will cause some technical resistance. But breaking above there would be a very bullish sign and could open up the door to 0.86. This would be a reversal of the overall sentiment at the moment and therefore be difficult to achieve.
This is a market that's been bearish for a while. Interest rates do favor the British pound, so that in and of itself might be a reason to think about it. This is a form of the carry trade, but in slow motion. The stability here, though, could be a bonus for those worried about intervention in the yen-denominated markets.
I like the idea of taking advantage of the yield differential in a situation where, quite frankly, I just don't see a good argument for the market taking off to the upside. But you always have to be open to the other possibilities.
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