Sterling may weaken as BOE concerns grow following PMI reports

Price action on EUR/GBP remains trapped between .7200 and .7450.  Last week, the currency pair climbed to .7441, following the US non-farm payroll report, which saw euro strength across board.  We may continue to see further EUR/GBP strength as the data from the UK is starting to weaken.  With the UK manufacturing remaining sluggish, we could see the Bank of England become increasingly hesitant on tightening talk.  If UK wages however continue to rise, we may see the bank acknowledge this and that could provide sterling with a major rally

The EUR/GBP daily chart shows the recent climb from the mid-July low of .6934, is finding tentative resistance from the .7450 level.  If we see bullish momentum break above this level following the BOE monetary decision and policy summary, we could see price rally towards to the .7550 zone.  It is around that area that we could see price form a bearish ABCD pattern


Eventually, a return of the longer-term bearish trend could return and retest this year’s lows

The trade: Buy EUR/GBP at .7340, with a stop loss at .7290 and a take profit at .7540.  The Risk/Reward Ratio is 1: 4

Edward J. Moya

Senior Market Strategist

WorldWideMarkets Online Trading