EUR/GBP plunges on Draghi comments

<p>EUR/GBP plunged on Thursday after the European Central Bank (ECB) kept key interest rates unchanged, as expected, and ECB President Mario Draghi made some dovish […]</p>

EUR/GBP plunged on Thursday after the European Central Bank (ECB) kept key interest rates unchanged, as expected, and ECB President Mario Draghi made some dovish comments indicating that the central bank would be open to further quantitative easing.

As might have been expected, these comments prompted a substantial move for some key markets, including the euro currency and global equity markets. The euro plummeted against most other major currencies, including the dollar, pound, and yen, while the major European and U.S. benchmark stock indices surged, including the DAX, FTSE 100, and S&P 500.

Earlier on Thursday, a better-than-expected retail sales reading coming out of the UK prompted an early rise for sterling, helping to exacerbate EUR/GBP’s subsequent fall on the ECB’s remarks. UK retail sales volumes rose by 1.9%, far exceeding previous consensus expectations of 0.3%. This represented the largest increase in over two years.

EUR/GBP Daily Chart


From a technical price perspective, since hitting an eight-month high of 0.7491 just last week after trending to the upside for the past three months, EUR/GBP has spent the past week retreating sharply from that high. The currency pair broke down early this week below a key uptrend support line going back to August’s lows. That breakdown also pressured EUR/GBP below its 50-day moving average, which has been shadowing the noted uptrend line since late August.

From a longer-term perspective, EUR/GBP continues to trade within a strong downtrend going back over two years to the 0.8765-area high in August of 2013. A long-term downtrend line that extends back to that high was just closely approached by the noted eight-month high of 0.7491 last week.

With the current plunge, it appears that the currency pair could once again be on track to resume its long-term downtrend after having rallied for the past few months and then subsequently breaking down below the noted uptrend line early this week.

If this is the case, the immediate downside target for EUR/GBP is around the 0.7200 support level, last hit in late September. Any further break below 0.7200 should also break below the 200-day moving average, which could intensify the currency pair’s bearish bias. In that event, a further key downside target is around the 0.7000 psychological support level, near July’s long-term lows.

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