EUR/GBP Daily Outlook April 26, 2012

By: Christopher Lewis

EUR/GBP isn’t a pair that many traders pay much attention to at times. I have always found this odd considering it features two of the most widely traded currencies in the world. It isn’t a major pair in the minds of many, but then again – it isn’t exactly an exotic. It is what many would refer to as a “minor” pair.

However, this is one of the most important pairs for me. It isn’t just that it can obviously be traded, but it also gives me quite a bit of information when looking at potential trades. The EUR/GBP is a direct measure of strength in these two currencies without the noise of adding the US dollar. With the recent troubles in Europe, it shouldn’t be surprising that the pair has been falling lately.

The pair can be used not only as a trading instrument – be careful, the pip value is higher than most other pairs – but it can also be a tool to measure relative strength between the two currencies. If the EUR/GBP is falling, then the Pound is stronger than the Euro. While this seems like common sense, it also tells you that in a greater sense, you can use this chart to tell you which one of the two currencies you want to either buy or sell against the Dollar as well.

Shooting star and recession!

The United Kingdom officially went into recession during the Wednesday session. This would have been a great factor in the rise of the pair during the early part of the trading day. However, this pair managed to fall later to form a shooting star at the bottom of the downtrend. This is a very ominous sign, and it can’t be lost on traders that the top of the shooting star saw failure at the first sign of resistance. A break below the bottom of the range for Wednesday will send this pair lower and heading towards the 0.80 level. This would also speak well of the GBP/USD pair, as the market in that pair formed a hammer at the top of the latest move higher. Although the EUR/USD shows strength – it looks like the Pound is the better purchase of the two. Not a big surprise if you think about it.