Is EUR/GBP Near a Top?

Is EUR/GBP Near a Top?

Is EUR/GBP Near a Top?

In the past month, we have seen strong gains in EUR/GBP. In fact it has been one of this week’s best performers. The rise in the currency pair is surprising considering the lack of Eurozone and U.K. data and the falling spread between Eurozone and U.K. rates. Early this month the ECB expanded the scope of its Quantitative Easing program and instead of falling, the euro torpedoed higher. Shortly thereafter sterling began to fall. Both the price action of euro and sterling have been counterintuitive and the only possible reason for the move is that investors believe the latest round of ECB easing will be enough to turn the Eurozone economy around or that the BoE won’t raise interest rates next year because wage growth slowed. While there have been some downside surprises in U.K. data, the economy is stronger than the Eurozone. Nonetheless, that has mattered little to EURGBP traders who have sent the currency pair sharply higher.

If fundamentals aren’t behind the move in EUR/GBP then it must be driven by techncials and sentiment. On Monday, EUR/GBP broke above 73 cents, a former support turned resistance level and the move triggered stops that took the pair above 74 cents. The August spike high near 0.7425 is the next level to watch with the more important resistance being the October high of 0.7492. If EUR/GBP fails at 74 cents, a return to 73 is likely.

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