Late on Friday, the EU had several countries downgraded by S&P, and as a result not all of the market reaction is in the chart. In fact, only a handful of banks were online when this was being announced. The biggest hit was that the French were cut down on notch. The market has been very weak for the Euro in general, and it has fallen against most other currencies.
The weekly candle that formed is a shooting star at the bottom of the downward plunge, just like the EUR/USD pair, and currently is sitting just above the 0.8250 level. The area is the beginning of a massive support level all the way down to 0.80, and we think this will be a bit of a grind going lower, but this is also the nature of the pair to begin with.
The pair will also have several different cross currents at the same time. After all, it isn’t just the Euro that is in trouble overall, as the Pound is doing its part lately as well. The shape of the candle suggests that the bulls made some kind of feeble attempt to rally, but were very handily dispatched later in the week.
Because of this, we prefer selling this pair, but to be honest – there are going to be easier ways to take advantage of the Euro weakness at the moment. The Pound is currently barely hanging on by a thread against the Dollar, and this should continue to mute any falls in this pair as the chart is simply a measure of two unwanted currencies.
A break below the 0.80 level would be a massive event, as it is this “fulcrum” of the pair historically. The upside seems to be protected by the 0.84 level, and runs all the way to the 0.85 mark. A break above 0.85 is what it would take in order for us to get bullish again, and with all of the massive problems in the EU right now – that isn’t likely. Going forward, we would sell rallies and a break below 0.80, but expect choppiness ahead.
EUR/GBP Forecast for the Week of January 16, 2012, Technical Analysis
Originally posted here
