EUR/GBP fell during the session on Tuesday as the problems in Europe continue. With the Italian Prime Minister Mario Draghi stating that he could not rule out Italy needing bailout funds, this sent a lot of people running from the Euro during the session.
This pair has been an interesting one for me, as we recently had a bearish flag break to the downside. The pole on the bearish flag does suggest a move down to 0.76, and that is exactly what I'm anticipating. The candle for the session on Tuesday is closing at the very lows, and just under the 0.79 level. This suggests to me that we are going to see further weakness, and we should continue to sell the Euro overall.
Less not use the matter: this pair is a reflection of a horrible currency versus a mediocre one. I am not in love with the British pound, and it does look weak against some other currencies. But the fact is that it is not the Euro, and that's what matters in a currency pair. This market is a market of relativity, and this currency pair is an excellent example of that.
Distrust the rallies
By now, you should be aware of the fact that anytime the euro rallies it is suspect and more than likely going to fail. This is going to be true against all currencies, as it isn't the fact that the other currency or economy is doing so much better, rather there so many problems in the European Union. With this in mind, I think that adding to a short position in this pair is the appropriate thing to do. There are times in the currency markets where you are better served “going for the throat” so to speak, and this is one of those times.
On a bounce, I am looking for week candles such as shooting stars on shorter time frames in which to add to my already short position. If I were to look for a "perfect spot" to sell from, it would more than likely be the 0.80 level if he gets retested. As for buying this pair, I'm not even considering it at this point in time, but could see a case being made for it if the pair manages to close on the daily chart above the 0.8150 level.