The Calculated Mover: EURGBP
The Euro – Great British Pound Franc currency pair is a currency pair often with slow moving trends. Since its inception, the fate of the Euro has been tied to the United Kingdom. The economies are mutually tied due to geographic proximity and have had exceptional trade relations. This fundamental factor has helped the Euro zone grow and is seen in the appreciation of the EURGBP pair moving as much as 4117 pips from the 2000 low to the 2007 high at .9805.
Pictured below we can see the ascent of the EURGBP, begging near the inception of the Euro in 2000. During its climb the EURGBP has been known to have less volatility than other Euro pairs. On average the EURGBP moves approximately 50 pips a day making it about half as active as the EURUSD pair . It is important to note that ATR levels spiked during the 2008 financial crisis to a record level of 230 and promptly declined.
As ATR decliend to more normal levels, the EURGBP declined as well trading nearly 19% off its 2008 highs and challenging to create a new trend! As new market direction develops, lets look at the primary fundamental driver of the EURGBP pair.
European Sovereign Debt Crisis
The recent decline in the EURGBP has come on the back of the ongoing European sovereign debt crisis. Growth has stalled in the Euro zone as rumors of banks collapsing, social unrest, and political changes develop. European businesses and investors have turned skittish and are looking across the channel to their neighbors to park their funds as their continental crisis plays out. In result, London has seen an explosion of demand for Great British Pounds. This has moved the EURGBP into the longest bear trend in its existence, declining over 1800 pips in the last three years. Going forward if this economic peril continues in Europe, it may spell a change in the long term trend on the currency pair.
Trading the EURGBP
Trading a pair like the EURGBP is an excellent proposition for trend traders that prefer to avoid the volatility of the traditional EURUSD and EURJPY pairs. Known for long lasting trends, it is critical to identify support and resistance levels to successfully trade the EURGBP. Currently resistance is established by connecting our 2008 and 2011 high at .9084. Support is created by connecting the February 2009 low at .9663 with the June 2009 low at.8399. Both support and resistance are running parallel in a downward trajectory indicative of a bearish price channel.
Traders will look to take advantage of the developing channel by selling resistance and buying support. Oscillators such as RSI or MACD can be employed to gauge momentum and market timing for new entry positions. Breakout traders may also use the pricing channel to look for a breakout of resistance and a return to the longer standing uptrend. Regardless of the method traded, keeping an eye on these levels will help astute traders better navigate the EURGBP.
---Written by Walker England, Trading Instructor
To contact Walker, email WEngland@FXCM.com . Follow me on Twitter at @WEnglandFX.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.