The Euro has had a rough run against the British pound over the last several weeks, and as I write this, we are testing a major support level. The 0.85 level has been important more than once, and as a result it looks very likely that the market is going to continue going lower. Beyond that, we have just cracked below the bottom of an uptrend line, so it’s likely that we could continue to see negative movement. At this point in time though, it’s likely to be very noisy as we go through Brexit.
That being said, it looks as if we are going to get a Tory Parliament, and therefore Brexit becomes more of a reality. The 0.84 level underneath would be a target, but if that level gives way to downward pressure, we could start to see this market unwind quite drastically. I believe this is because the British will be leaving the European Union, and quite frankly the European Union isn’t exactly humming along economically. The ECB looks to be very loose going forward as Christine Lagarde takes control. With this, it makes quite a bit of sense that we continue to drop because of the attitude that she brings.
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As the British leave the European Union and gain a bit of clarity with their future, that should help the British pound as well. Just take a look at the last several months as we had shot straight up in the air, and then wiped all of those gains out almost as quickly. That tells me that it’s over for the buyers longer-term, and it’s not to say that we can’t rally from here, but it’s only a matter of time before we break down.
If the market closes below the 0.84 level in the month of December, that will probably bring in the 0.80 level early next year. Rallies at this point will continue to struggle to get above the 0.86 handle, so at this point I like the idea of fading short-term rallies. Obviously, there will be headlines from Brexit that can throw the spear around, but it should be noted that the wipeout of the entire impulsive move to the upside is in fact a huge signal in and of itself. Ultimately, I am a seller of this pair but recognize that it will probably chop back and forth with a negative attitude during the month more than anything else.
