EUR/GBP has been one that I have been very interested in lately, as the pair is currently looking to break a major bearish flag, and the Euro is so unloved at the moment. The 0.80 level is right there as well, so a lot of things are lining up at the same time – something I like to see.
The European Union is holding a summit on Thursday and Friday of this week, and it looks as if the market isn’t willing to buy on “hopium” this time. In fact, it is almost as if the market has finally come to understand that the politicians in Europe are nowhere near a consensus on what to do. Essentially the situation is that we have a multitude of countries that are asking the Germans to bail them out. (Maybe the Dutch and Finns as well, but both of those countries are far too small to be a major factor.)
There are reports of many wealthy Europeans sending their wealth into the United Kingdom as the various problems in Europe have them looking for some kind of safe haven. The French are about to increase taxes drastically, and there are even central banks, such as the one in Switzerland, that are buying Pounds as well. It is because of this that the Pound has enjoyed strength over the Euro – on top of all of the European drama at the moment.
Flag breaking down?
The flag looks like it is ready to give way. I obviously cannot buy this market at the moment, as the trend is so negative and there are a multitude of reasons to avoid owning the Euro in general. The flag measures for a drive down to the 0.76 level, and I think that the move is certainly feasible given the circumstances surrounding the European Union.
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The 0.80 level will have to give way for me to be completely comfortable being short, but this looks to be about to happen. If there is nothing that comes out of the meeting this week in Europe, I think this pair should begin the next leg down.