EUR/GBP attempted a rally on Monday as trading got back underway for the year. The pair has been very bearish lately, mainly spurred on by all of the bad news out of Europe. The pair rose for the start of the session, but only fell later to form a shooting star at the bottom of the recent range.
The fact that the candle formed at the very bottom of the range after a massive fall on Friday shows that there might be real underlying weakness to come in this pair. The UK certainly has its own problems, but the flow of money out of Europe certainly is going through British banks. The United Kingdom will certainly have to face strict austerity over the next several months, but it is also the closest geographical region to the European Union that money can flow to with the exception of Switzerland, which is actively making that difficult for people as the rush into that country has caused interventions in the currency markets. With all of that in mind, it only makes sense that Britain is going to win this game by default.
However, with the British economy certainly set to struggle as well, this pair will more than likely is a slow moving one. The move down will be move of a grind than a fall, and this should be kept in mind if you are trading this pair. The candle on Friday showed just how strong the sentiment against the Euro is, and the direction has certainly been set going forward. Now it is simply going to be a matter of paying attention to resistance and support levels.
The 0.85 is our “line in the sand” in this pair. If we can rise above it on a daily close, it would have us rethinking the entire situation. But until that happens – we can only sell this pair. The 0.84 level also looks very resistive as well, and we think that it would be a good place to sell if we bounce back up to it and get a weak candle. A break below the 0.83 level should send this pair lower as well, and we would target the 0.80 level on that move.
EUR/GBP Forecast January 3, 2012, Technical Analysis
Originally posted here
