By: Christopher Lewis
EUR/GBP isn’t a pair that a lot of retail traders give a fair shake to. True, it isn’t always the most volatile, but it has a higher pip value, so it doesn’t need to move like some of the other pairs. One of the reasons it gets a bad rap is that the slow action tricks traders into thinking that it won’t give them decent profits as they trade it. However, this isn’t true at all.
Of course, you have to understand that the reason the pair moves so slowly is similar to the USD/CAD or NOK/SEK pairs. In all of these cases, you have two economies that are very interconnected, and as a result the currencies typically won’t make sudden moves. If you think about it, this makes sense as bad news out of country “A” will often mean bad news for country “B”, given enough time.
The European Union has many problems right now. If you even remotely know what is going on in the world, you certainly know this. This then leads to the question of “How much damage is the EU and it’s problems going to do to the UK?” While there is a debate about this at the moment, signs are that the UK isn’t as bad off as people feared.
No QE for UK?
Bank of England officials recently suggested that perhaps the country wouldn’t have to expand its bond buying program going forward. This was unexpected, and has helped push the value of the Pound up recently against many other currencies as it had been oversold because of this fear. When you compare this with the ominous uncertainty out of Europe, it makes sense that the EUR/GBP pair would fall.
.png "EUR/GBP Daily 3/6/12")
The recent trend is certainly down, and as a result I am always going to feel a bit more comfortable selling anyway. The action on Monday formed a shooting star at the bottom of a selloff, which in my estimation is one of the more reliable signals when it gets broken to the downside for confirmation of a continuative move. Because of this, I believe this pair is about to fall again. I will be shorting this pair if we can clear the 0.83 level just below it as it is supportive as well, but only after a daily close below it. Once that happens, I believe the 0.80 level will eventually get tested as well. I am not interested in owning the Euro in general right now, so buying this pair isn’t really a thought.