By: Christopher Lewis
The EUR/GBP pair has been fairly bearish over the last several weeks. The pair is a real contrast in fortunes, as the central banks of both economies are at polar opposite places as the European Union has massive problems, while the United Kingdom is showing signs of recovery.
The Bank of England has recently stated that there was little need for further quantitative easing, and as such it appears now that the United Kingdom will be raising rates in the future. This is put into perspective as the Bank of England even is starting to openly stating that the real fear is that the rate of inflation will pick up. With this in mind, rate hikes will be the next action. The European Union on the other hand, has many debt bombs just waiting to explode. The printing of Euros is almost a foregone conclusion.
The recent weeks have seen a drop of about 200 pips, which in this pair actually means something. After all, the pip value of this pair is larger and the average range is much smaller than many of the other pairs I produce these reports on. The breaking of the 0.82 level is something that I had be waiting on, and it now looks like we are going to have to determine the next move in the next few sessions.
Quick bounce, then retreat
The par looks like it is ready to bounce based upon the two hammers in a row that have formed over the last 48 trading hours. The Friday session actually saw the market break above the top of the Thursday session, which of course is a buy signal. However, I don’t for a moment want to own this pair – rather I would sell it. I think the hammers suggest that the pair will bounce from there, but look for the cluster of price action in the 0.8250 area in which to start selling from. The trend is for weakness, and the swap is positive for the sellers – and will get even more so in the future. With this in mind, I am looking to sell in the 0.8250 area on the first sign of weakness.
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