EURGBP: Is Pound’s Outperformance Ending?

<p>As the situation in Greece has deteriorated, many traders speculated that pound sterling would be the big beneficiary, serving as a regional safe haven for […]</p>

As the situation in Greece has deteriorated, many traders speculated that pound sterling would be the big beneficiary, serving as a regional safe haven for capital fleeing the Eurozone. Over the last several weeks, that theory has proven somewhat effective, but today’s big selloff (driven partly by weak manufacturing data out of the UK this morning) suggests that the pound’s outperformance may be coming to an end.

Looking to the chart, EURGBP has dropped about 400 pips over the last month to hit a new 7.5-year low under .7000, but bears were not able to keep the pair below that level and rates have since recovered back to trade above .7100 as of writing. At this point, there is a well-defined range from support at .7000 up to resistance around .7400, and that range may endure regardless of any near-term issues with Greece.

Meanwhile, the 14-day RSI indicator has found support around the 40 level, forming a persistent bullish divergence with price over the last two weeks. This formation suggests sellers are losing momentum below the .7100 handle and hints at a possible reversal back higher. From here, the most important short-term level to watch will be the 38.2% Fibonacci retracement at .7140: if EURGBP can break above that resistance level, a continuation toward the .7200 handle or the 61.8% Fibo at .7235 may be seen later this week. Only a conclusive break below the floor at .7000 would shift the near-term bias to the downside.

Key Economic Data / News that May Impact EUR/GBP This Week (all times GMT):

  • Wednesday: Eurogroup Meeting on Greece (all day), UK Budget Release (11:30)
  • Thursday: BOE Meeting and Statement (11:00)
  • Friday: UK Trade Balance (8:30)

EURGBPDAILY7-7-2015 3-29-00 PMSource: City Index

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