The interest rate differential between the two currencies is negligible at best now, so we’re not even playing along those lines. We’re just trying to figure out whether or not the Bank of England is going to start a larger rate-cutting cycle or not. We already know that the Federal Reserve is likely to cut rates again once or twice, but there are also a lot of questions as to when.
I think you’ve got a lot of concern here playing out, but the British pound has outperformed most of its contemporaries against the US dollar for some time now, be it up or down. It seems to be either stronger or less bad than other currencies, so I expect the dollar to have more of a fight here than it will against other currencies.
EUR/GBP Technical Analysis
The Euro has fallen pretty significantly against the British pound early in the session as we look like we are rolling over at a major resistance barrier. At this point, I think you have to look at this through the prism of a market that is just simply reflecting the reality that the Euro is a lot weaker than the pound against most currencies. So, when you match the two together, this trade makes perfect sense.
We have smashed through a short-term trendline and we’ve smashed through significant support. At this point, I anticipate that this market will continue to go lower, probably down to the 0.86 level initially, and then possibly even lower than that. We’ll just have to wait and see, but this is a pair that I am most certainly interested in shorting, and as a result, I think you have to look at this as an opportunity.
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