EURUSD
The EUR to GBP exchange rate continued to come down from almost 0.93, a level reached in the first part of September. However, the decline is gradual, uneven, and takes a lot of time.
This time it reached support at 0.90, a level that proved pivotal in the years following the Brexit referendum in 2016. But as the ECB prepares to ease in December, the EURGBP may have a tough time holding to it.
Yesterday’s ECB message left no doubt that the central bank will ease the monetary conditions in December again. Moreover, it said that it would look at all instruments and recalibrate them appropriately.
As such, the market expects a combination of increased QE and some other measures, maybe even lowering the deposit facility rate more into the negative territory.
The Euro suffered yesterday on the back of the ECB decision. The EURUSD pair, the benchmark for the Euro pairs, fell over one hundred points on the ECB message. However, the EURGBP cross did not follow suit. In fact, at some point during the press conference, the EUR to GBP exchange range even rallied. The reaction made it clear that the market was moving based on the USD volatility. Both AUDUSD and GBPUSD fell, in the first case, even more than the EURUSD did.
The technical picture on the EURGBP cross shows a potential bullish flag. However, before jumping on the long side, bulls should consider the massive retracement that does not bode well with a bullish pattern. Most flags form the consolidation on the horizontal, and not during a retracement that exceeds 61.8% of the initial rally.
As such, the bias remains bearish, with the EURGBP bears prepared to sell if the market breaks below 0.8950. If that is the case, a stop-loss at 0.9050 and a take profit at 0.87 delivers an appropriate risk-reward ratio.
