Euro Testing Major Support Against Sterling

Alan Penny

31 October 2019

2 min read

euro and pound coins

  • Euro testing major support against British pound
  • 100-point zone of support
  • Recent “death cross” beginning to appear

The euro has broken down a bit during the trading session on Thursday, reaching towards the 0.86 level. At this point, the market looks very likely to continue to see a lot of noise. This comes as there is a “zone of support” extending down to the 0.85 level. Therefore, a certain amount of “market memory” could come into play.

At this point, the market has gotten a bit overextended, so it’s difficult to believe that it would simply slice through that level. However, it is obviously an area that’s worth paying attention to.

British pound strength

The British pound has been strengthening against the euro as the market has priced in the idea of the European Union giving the British another 90 days to get their act together. The Brexit deadline extension has traders thinking all kinds of things that could be good for the British pound and the country’s economy. In fact, there are still plenty of people out there who hope against hope that Brexit won’t even happen.

That being said, it’s very likely to happen, but it now looks as if the market is starting to consider the idea of some type of deal happening. 

The fact that the British pound has strengthened may have more to do with relief.

However, one thing that should be kept in mind is that the European Union is starting to head into a recession. That, of course, will work against the value of the euro in general.

This is essentially a fight between two lightweights, but the fact that the British pound has strengthened may have more to do with relief than anything, and that gives you an idea of what is going on here. Still, if the market does fall below 0.85  it’s very likely to continue to much lower. At the very least, it will form another two handles.

Trading this market going forward

The market is easy to trade if you can be patient enough to take advantage of the options laid out in front of you. Rallies at this point should find plenty of resistance, extending all the way to at least the 0.8850 level.

This is where the so-called “death cross” occurred. It means that the 50-day EMA has crossed below the 200-day EMA, a longer-term negative sign.

Ultimately, if the market rallies, you should be looking at opportunities to start shorting. Otherwise, if the market breaks down below that psychologically important 0.85 handle, it’s a sign that the selling is going to continue.

It is not until the 0.90 level gets broken to the upside, taking out the massive surge lower, that the buyers will have recaptured the market again and turned things around completely. At this point, simply looking for the opportunity to buy the British pound seems to be the best way to deal with this currency pair.

Written By
Alan Penny

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