Euro vs. Pound: Forex Trading Strategy (EUR/GBP)

Euro vs. Pound: Forex Trading Strategy (EUR/GBP)

09:00 AM (EST) Update

European currency is doing backflips after yesterday’s economic news while the British Pound appears to be a bit moody on the forex dance floor. So it only makes sense to pair them up and conduct a full-on Invest Diva Diamond forex trading analysis.

Economic Stuff

Euro Side

We were eyeing two important European events on Wednesday and therefore I suggested NOT getting in a bearish position on the EUR/USD pair. Aren’t you happy you listened to me? (You know who you are 😉 )

After three consecutive days of drops, Mr. Euro has been back up and the main two reasons could be the following:

1- Euro Zone PMIs came in better than expected

2- Super Mario was upbeat about the economy

Now, we are are not saying that the gains are here to stay. After all, this was only was set of positive economic releases after many. And ECB governor Mario Draghi (aka Super Mario) sure knows how to play with investors feelings.

Barely a few weeks have passed since he admitted that the central bank is open to further easing if price levels fall further, then he changed his tone to indicate that he’s expecting inflation to rise by the end of 2015.

Super Mario went on to say that the risks to the euro zone’s growth prospects have increased due to the downturn in China and emerging markets, but he also emphasized that policymakers need more time and economic evidence to decide if additional stimulus is warranted. Draghi also shone the spotlight on Greece, saying that the debt-ridden nation has made considerable progress with its reforms and that debt relief could be a possibility if it sticks to its bailout requirements.
UK Side

Why are the Brits so sad recently? It could be because Kate Middleton and Prince William’s only daughter Princess Charlotte won’t be seen in any designer dresses anytime soon . Or maybe it is because taking a look at the UK economic data in September gives us a chill as many of the numbers are printed in red. I would say it’s probably the later (no kidding!)

UK PMIs came in slightly worse than expected while they did show growth from the previous release. The biggest hits were probably the industrial production (YoY) which came in at 0.8% versus previous 1.5% and the Producer Price Index (PPI) which came in at -2.4% versus July’s -1.2% bringing down the annual PPI to -13.8%.

Contributing the most to the moodiness of Mr. British Pound could be the Bank of England (BoE) officials who are contradicting each other when it comes to interest rates. According to a senior BoE official, Sir Jon Cunliffe, interest rates are set to rise despite turmoil in the global economy. His comments come after the Bank’s chief economist, Andy Haldane, suggested that the main rate could be cut if downside risks to growth and inflation materialize.

So what’s a takeaway for the British Pound? Get moody just like BoE officials!

Technical Stuff

Dancing against Ms. USA, Mr. Euro touched down a key support level at 1.11 but wasn’t able to break below it (the EUR/USD pair.) Against the British Pound, the Euro gains have been larger and currently testing 0.7350 on the daily chart, which is a key resistance at 38% Fibonacci level. The pair remains above the Ichimoku cloud and has generally been ranging between 0.7477 and the 0.70 zone sine March 2015. This new bullish sentiment may have opened doors to gains towards the 50% Fibonacci at 0.7477.

Zooming out into the monthly chart reveals a trickier path for long-term bullish strategy however. The current bullish sentiment appears to be a mere correction during an overall downtrend that has been in place since August 2013.

Alternatively, a break above any of the senior Fibonacci levels (50% and 61%) could signal a trend change in a long run.

EUR/USD Supports and Resistance levels

Support Levels Turning Point Resistance Levels
0.7050 0.7350 0.76
0.67 0.7190 0.7477

*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.