EURGBP Tanks on ECB Rate Cut

by on November 7, 2013 4:17 pm GMT

EURGBP tanked when the European Central Bank (ECB) cut the benchmark rate by 25 bps, and Sterling climbed to a nine-month high against the euro, but weakened against the dollar as the Bank of England (BoE) will keep rates at .5 percent.

It is expected that the cable will continue to be strong against all European currencies. “You’ve got one central bank that’s easing and the other that’s neutral, so that keeps the pound strong versus the euro. Sterling should do well against most European currencies,” said Royal Bank of Scotland FX strategist Paul Robson.

Even though Robson said the BoE is “out of kilter” with other eurozone policies, the United Kingdom is far above the eurozone in terms of economic recovery. The BoE also said, numerous times, that rates will remain the same until unemployment drops from 7.7 percent to under seven percent, which may not happen until 2015.

The daily chart of EURGBP shows price action breaking below .8347, and a close below this should signal further downside to .8230. Although, it will be prudent to let the massive decline in the euro smooth out, but there are increasing negative signs developing for the euro which should allow the Sterling to benefit.

The ADX is sloping upward indicating a increasing momentum and is above the standard 20 minimum for strong trend development. Also, there is a rather large divergence of -DMI and +DMI. Finally, there is a negative convergence of important exponential moving averages that should provide technical selling. The 20 EMA crossed the 50 EMA and approaching the 200 EMA. Furthermore, if the selling continues, the 50 EMA will dive below the 200 EMA. Not good news, technically speaking.

However, if buying moves it above this support turned resistance, a move to retest .84 is possible.

1D Chart of EURGBP

1D Chart of EURGBP