EUR GBP extends decline towards key support

EUR/GBP extended its recent decline on Wednesday as the pound surged while the euro remained in a tight trading range. UK employment data came out on Wednesday morning, showing that the unemployment rate for the third quarter of this year declined to 5.3%, the lowest rate in seven years. This helped to prop up the pound against other major currencies, including the euro.

While the Bank of England (BOE) is generally expected to begin raising interest rates sometime next year, the European Central Bank (ECB) has lately been increasingly dovish, indicating a willingness to extend its stimulus measures in the form of further quantitative easing. This relative divergence in monetary policy between the BOE and ECB could likely lead to more downside for EUR/GBP.

From a technical perspective, EUR/GBP is entrenched in a clear downtrend on both a long-term and short-term basis. Longer-term, the currency pair has continued to trade below a key downtrend line extending back more than two years to the August 2013 high around 0.8765 resistance. Shorter-term, EUR/GBP has fallen consistently since its most recent retest of that trend line just a month ago in mid-October.

During the course of this slide within the past month, the currency pair broke down below several different support factors, including a key uptrend support line, both the 50-day and 200-day moving averages, and a major support/resistance level at 0.7200. After the breakdown below 0.7200, EUR/GBP rose back up to retest that level last week as resistance before continuing its retreat to the current lows below 0.7100.

Now trading well below its 200-day moving average, EUR/GBP’s outlook continues to be bearish, with downside targets at both the key 0.7000 psychological support level as well as July’s multi-year low of 0.6935.