EUR/GBP Forecast

Forex Technical Update Prev: EUR/GBP Completing a Declining Wedge; Correction Rally Ahead? (7/18) EUR/GBP Weak Breakout So Far: - There was indeed a correction rally to follow a completed declining wedge. - This initial breakout was weak in that it failed to establish bullish momentum (RSI failed to break above 70).  Despite the weak bullish attempt, the structure was a 5-wave rally before consolidating this first half of the week. Short-term Head and Shoulder Forming: - Current, the consolidation is range-bound, with a possible head and shoulder in development. One would be formed if the market continues lower in the Asian session to break below 0.8755. - A swing projection targets 0.8740. Here the market would have completed a 3-wave decline after a 5-wave rally. It would represent a harmonic, or Gartley retracement pattern (a deep one at that). BoE as Fundamental Risk Event: - The Bank of England Meeting Minutes are due 4:30 AM EDT (8:30 GMT, 9:30 BST). - Last time, we had dovish minutes and a slide...

  EUR/GBP fell on Tuesday, but still remains in the 0.88 level’s area. Because of this, the pair still looks stuck, and is going to be difficult to trade as the market simply seems to be confused at best. The overall trend seems to be up – but with all the noise coming out of Europe, this pair will be jumping at times. We are avoiding it at the moment.

  EUR/GBP rose again on Monday, showing just how attracted it is to the 0.88 level. We mentioned on Friday how this pair could rise in value, but there was simply too much sloppiness involved in the market, and we wanted to avoid it. The bounce has made it to 0.88, and looks very supportive. However, we don’t like all of the headline risks that are coming out of Europe at the moment, and as such – think the volatility swings in a pair like this could be brutal.

After weeks, or even months, central banks are once again floating hints of intervention. It should be no surprise that these innuendos come form Japan and Switzerland, countries which witnessed their respective currencies appreciate of late. In case of the Swiss Franc, this has been especially true – it has been making new highs against the Euro, the Dollar and the Pound for a long time now. Last week has been no exception and all these currencies sank to new lows versus the CHF. Officials from both the BoJ and the SNB have quoted as “closely monitoring the markets”, complaining that too strong currencies hurt their countries’ competitiveness and exchange rates are “far out of line with real fundamentals”. As always, the BoJ is more vocal, but for the SNB’s comments are notable, because the central banks has been quiet for a long time. In the past they intervened when the EUR-CHF was around 1.5000, now it is closer to 1.15000,...

  EUR/GBP had down to neutral day on Friday, ending the day basically unchanged. The pair seems content to hang around this area, and it should be said that it feels like sitting this low after the quick fall isn’t out of kilter. Because of this, we think that the market could go lower, and with all of the headline risks, we think it is a sound thesis. The 0.87 area, if closed below, could be a trigger for fresh selling.

  EUR/GBP had a down week, breaking below the 0.88 level, an area that has been an absolute magnet for prices lately. However, the pair hasn’t cleared all support, and it looks like it need to clear 0.87 before selling it. In the meantime, we suggest observing, and waiting for a daily close below that level to sell. We don’t like buying with all of the issues in Europe at the moment.

  EUR/GBP fell on Thursday, testing the lowest part of the support area in the 0.88 level. The pair could be a sell if it drops below the 0.87 handle, and with the European bank stress tests coming out later in the day, bad results will almost certainly push this pair much lower. We are neutral until we see that breakdown, or other suggestive candle formations on the daily chart.

UK Claimant Count Climbs by 24.5K in June, Worrisome for the Pound In the UK we saw jobless benefit claims rise by a larger than expected amount in June, up 24.5K compared to expectations of a 15.1K increase. The figure for May was also revised upward to 22.5K from the originally reported 19.6K. The ILO unemployment rate for May (it trails the jobless claims by a month) remained at 7.7%. We previewed this release here: Anticipating UK Employment Data in the Context of Bearish GBP/USD Why Was This Release Important: The importance of this report is that the UK economy is showing a fragile recovery amid government austerity measures – which includes cutting the government payrolls by 300K jobs. A deteriorating labor market will only add strain the already weak domestic demand, which puts pressure on businesses. With trade not being able to give the economy the boost the government and central bank may have been relying on, the questions becomes if austerity measures – while...

  The EUR/GBP pair rose back above the 0.88 area on Wednesday, but fell just as quick. This pair currently looks like a good place to get chopped up in trading, so we are leery of trading it. The 0.88 level has acted like a magnet, and as such it seems that any move quickly gets turned back towards it. We are avoiding this pair until we see a clearer signal.

The EUR/GBP fell on Tuesday again, but still seems to cling to the 0.88 zone as there were bids at the end of the day in order to push prices back up. The pair looks choppy, and quite frankly – we are avoiding this pair at this point as we feel it is too fraught with headline risk at the moment.