Watch For EUR/GBP’s False Break

We step away from the loud noise out of North America to look at EUR/GBP, which has seen some interesting moves over the past few sessions.

Pressure has been building over the last few months for a strong break above 0.8850 and the Bank of England’s deputy governor, Ben Broadbent gave the market the ammunition it wanted to head higher when he said he was ‘not ready’ to tighten monetary policy.

With the MPC on a knife edge in terms of hawks vs. doves for the first time in years, expectations were that Broadbent would be the swing voter that sided with the external members voting for a hike. By also casting his concerns on Brexit ‘imponderables,’ that was enough to push EUR/GBP through this long-term barrier.

The credit ratings agency Moody’s also boosted the pair Tuesday stating that it sees UK growth declining this year and next and that the UK’s sovereign rating could be downgraded if the ‘core elements’ of the UK’s current access to the EU Single Market aren’t maintained.

If we step back and look at the daily candle chart, this shows prices have bounced strongly from April’s year-to-date low at 0.8297, which also tied in with November’s low. The gap after the first French Presidential election was filled but since May, the single currency has charged 500 points higher. Prices made an ascending triangle over the course of last month and the break of that, while also being a long-term structural level, means we should head for October 2016 highs above 0.90.


That said, Wednesday’s price action gives us cause for concern. The strong rejection to Tuesday’s move looks like the formation of a classic 2 bar reversal pattern and it is notable that these reversal indicators are best found in strong trends where there is strong support or resistance.

With this in mind, we will watch this pair with keen interest as the potential 2017 top made on Wednesday could well mean prices drift back to the 150-point range made over most of June. However, EUR/GBP has seen a strong ‘buy-on-dips’ mentality and monitoring the Bank of England’s voting bias, especially the new member Tenrero, will be key going forward.

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