By FXEmpire.com
Yesterday, the price pattern in the EUR/GBP cross rate was an almost perfect copy of what happened in the headline EUR/USD cross rate. The pair reached a corrective high north of the 0.8150 mark at the open of the markets in Asia.
From there the elation on the Spanish banking plan (if any) cooled further out in the session. So, EUR/GBP also reversed the initially gains and even dropped below Friday’s closing level. Overnight the pair came even near last week’s lows in the mid 0.80 area. There were few economic data in the UK with market moving potential. At a seminar, BoE’s Posen admitted that he was too optimistic on the UK economy when he halted his vote for more QE. So, he is likely to join the camp supporting more asset purchases at the July meeting.
However, his comments had hardly any impact on sterling trading. The focus was on the euro side of the story.
Overnight, the RICS House price balance was marginally better than expected at -16%. Later today, markets will keep an eye at the UK production data and at the monthly NIESR GDP report. More indications that the UK economy is losing momentum might support the case for a restart of the program of asset purchases. We assume that the overall sentiment on the euro will prevail.
As is the case for EUR/USD, yesterday’s price action at least suggests that the upside of the euro is difficult event against the likes of the sterling. So, a sell-on upticks approach for return action to the 79.50 range bottom is preferred.
From a technical point of view, the EUR/GBP cross rate is showing tentative signs that the decline is slowing. Early May, the key 0.8068 support was cleared. This break opened the way for a potential return action to the 0.77 area (October 2008 lows). Mid May, the pair set a correction low at 0.7950. From there, a rebound/short squeeze kicked in. Continued trading above the 0.8095 area (gap) would call off the downside alert. A first attempt to do so was rejected. Last week (and yesterday) the pair tried several times to regain the 0.8100 area. This break improved the short-term picture in this cross rate, but there were no follow-through gains. Overnight the pair even fell back below the 0.8100 neckline. The targets of the DB formation are seen at 0.8233 and 0.8254. Look to sell into strength for return action lower in the range.
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Originally posted here
