If there has been any consistent trade out there lately, it's been to sell the Euro against just about anything else. It is in this thought process that I look at the EUR/GBP pair. Simply put, although I'm not a big fan of the British pound, I have to admit that it has been shown significant support against the US dollar. On the other hand, the Euro has simply had a nice bounce, but nothing sustained at this point in time.
In a sense, this is a bit of triangulation. You simply measure the value of the Euro against the Pound in relation to the US dollar. Whichever one is going better, it is generally the one you want to buy in this pair. This also works in reverse as well, as this pair is a great barometer to separate out the US dollar in order to find out which currency is truly stronger.
Because the cable pair has been so resilient and continues to try and break above the 1.57 resistance area, it comes as no real surprise that we find this market so bearish as the Pound has certainly fared better than the Euro in general.
Bearish flag?
What find interesting is that even though we had a nice bullish surge during the Tuesday session, we still remain within an area that starting to look more and more like a bearish flag. Ironically, it was a bearish flag that got me selling this to begin with. That flag suggested on a break below the 0.805 level that we would be heading to 0.76 before the move was done.
Looking at the current flag, it appears that we are heading to 0.75 before the move is done. I can certainly agree with that kind of number, as it is a large round psychological target. Certainly, there will be some type of bounce at that number so it makes sense that the market would stop there.
With the European Central Bank meeting on Thursday, there is a real chance that the ECB disappoints. Also, you have to figure that anything that does well should weaken the Euro as well. In a sense the currency is in a Catch-22. Because of this, I am selling on the first sign of weakness.