EUR/GBP Forecast: Euro Continues to Strengthen Against Sterling

• I see that the EUR/GBP pair is starting to rise again, and perhaps threaten a major resistance barrier in the form of the 0.85 level furthermore, there are other technical analysis factor to take into account, but today has been very interesting to say the least.

EUR/GBP

The Euro rallied a bit during the course of the trading session on Monday to reach the crucial 0.85 level. The 0.85 level is an area that has been very important more than once, so therefore I think you need to be cognizant of the fact that it has a certain amount of “market memory” attached to it. Furthermore, we have the 50-Day EMA hanging around the same level, and that of course is a major influence on what happens next. We have pulled back from their rather aggressively, so it shows that there is quite a bit of selling pressure in that general vicinity.

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That being said, if we can get a daily close above the 0.85 level, then I think we have an opportunity to pick up value on any short-term dip, and the main reason I say this is due to the fact that we had recently tested a major support level underneath, which is right around the 0.84 level. This is an area that people had paid attention to on longer-term charts via a monthly action, and perhaps even yearly. All things being equal, the idea that one of these currencies are actually going to suddenly take off against the other for a longer-term move is probably a bit of a stretch, mainly due to the fact that the US dollar is king at the moment, and I think it will continue to be so.

This brings me to the main reason to follow this pair, which of course is the fact that it can give you relative strength characterization of either the euro or the British pound, and then you can trade these currencies against the other ones using this information. In other words, both of them are weak against the US dollar, but the euro is weaker than the British pound, then the trade is to short the EUR/USD pair. This is a process called “triangulation”, that I have found to be very profitable over the longer term.

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