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EUR/GBP – Hitting the 7350 Ceiling?
Its hard to fathom why the euro should be so strong today and the pound so weak, yet the net results has been to take EUR/GBP back to its long term resistance at 7350. The euro, after three straight days of selling finally saw a bounce today as it popped above the 1.1200 level but we think the rally will quickly fade.
Mario Draghi remains committed to more QE for the region and despite positive growth in last nights’s PMIs readings the EZ economic expansion is shaky at best. The recent VW scandal could only add to problems in the region as it finds one of EZ biggest companies facing a huge corruption scandal that today forced the resignation of the CEO.
Meanwhile cable has been ruthlessly sold for four straight days partly on dollar strength, but the pair actually is the second best performing economy in G-7 and is the only other CB besides the Fed that is even considering hiking rates, so we feel that it is grossly oversold at this point.
With cable now approaching key support at 1.5200 and with tomorrow’s IFO possibly ready to miss the estimates, chances are good that EUR/GBP may have topped out today and that it could be heading back to the 7200 level as it hits key resistance at 7350 zone.