The 0.86 level is an area that I will continue to pay close attention to, as it has been a bit of a floor in this market.
EUR/GBP
The Euro finds itself rallying against the British Pound after initially dropping on Wednesday. The 0.86 level is an area that I think will continue to be very important, as it has been both support and resistance recently.
Despite the fact that we are forming a bit of a hammer here, I don’t necessarily think this is a bullish sign. I think it’s just a sign that there is support below and perhaps the selling pressure is abating slightly.
The Interest Rate Differential
The real star of the show is going to be the British Pound before it’s all said and done in my estimation, due to the fact that the Bank of England, although thought to be cutting rates, is doing so very slowly. So there is an interest rate differential between the two economies.
Furthermore, I would take a look at this market from a longer-term perspective and recognize that near the 0.8850 level, we've seen a major top multiple times. We’ve pulled back from there. Obviously, we need to see some type of bounce in order to find a certain amount of value in order to buy the British Pound or, in this case, short this pair.
I have no interest in going long here because quite frankly, I think if you start to see the Euro take off against the Pound, the real play is probably going to be shorting the Pound against the US Dollar, but that’s an entirely different conversation. A breakdown below the 0.86 level could open up the possibility of a move down to the 0.84 level, which could take some time, but you get paid the entire time to hang on to that short position.
Ultimately, you have to keep in mind this is a very choppy pair under the best of circumstances and, quite frankly, these aren't necessarily the best of circumstances.