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GBP British Pound Likely to Rally Against Euro

Currencies / British Pound Nov 29, 2015 - 03:45 PM GMT

By: Richard_Cox

Currencies

The EUR/GBP is often a neglected pair when we look at activity in the currency markets, as alternatives like the GBP/USD and the EUR/USD tend to receive most of the market headlines.  But there are some potentially significant implications for the current activity that is being witnessed in the EUR/GBP, and this sets up some interesting trading possibilities for forex traders in these areas.


Since the important price levels in the pair are often overlooked for these reasons, it is important to have an understanding of where prices are currently trending so that we will better be able to tell if these trends are starting to reverse.  As the European Central Bank continues to express concerns for growth, we will continue to see longer-term investors continue to position for further weakness in the currency.  Any real change in interest rates will likely lead to key support breaks, so we will look at some price levels that should be watched by traders going forward.

Chart Outlook:  EUR/GBP

Chart Source:  FiboGroup

In the chart above, we can see that markets have been largely sideways in trend activity since the middle of March.  This is significant because we are trading at prices that make the Euro look excessively cheap relative to the longer term averages.  When prices reach these types of oversold levels without a bullish reversal, it is much more likely that the longer-term trend still prevails.  In this case, this outlook suggests new lows into next year for the EUR/GBP.

In terms of specific price levels, traders will need to continue monitoring activity in the EUR/GBP once prices fall to the 0.6850 zone, as this area should be expected to act as a strong support level.  If we do see an actual break here, the next level of support is not found until 0.65, so this would be a highly bullish event for the Pound if this came to fruition.

In terms of the central bank outlook, broader analysis continues to favor the GBP in this scenario given the fact that the Bank of England is experiencing higher rates of inflation and it would be much more difficult for the BoE to make any reductions in its base interest rate.  All of this points to a more positive outlook for the GBP as there are both technical and fundamental arguments that support further gains against the Euro.

By Richard Cox

© 2015 Richard Cox - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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