EUR/GBP: Headed to 90 Cents?

EUR/GBP hit a record high of 0.8740 today. The currency pair has been on a tear, which is not much of a surprise given the Bank of England’s aggressive interest rate cuts. The European Central Bank has not even cut rates by half of the amount that the Bank of England has cut since the beginning of the year – the ECB has eased by only 150bp while the BoE has cut by 325bp.

EUR/GBP is in the “buy zone,” according to our Bollinger Bands and there is no technical resistance until the psychological level of 90 cents.

Interest rates are behind the move in EUR/GBP as the spread between 3 month euro rates and 3 month UK rates go from negative to positive territory (see the tight correlation in the chart below).

If you believe like I do that the ECB will continue to cut interest rates less aggressively than the BoE and that the “spread” between EZ and UK rates will remain positive in the Euro’s favor, then EUR/GBP should headed to 90 cents.

EUR/GBP

 

About Kathy Lien 236 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of DailyFX.com, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Investopedia.com Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for Tradingmarkets.com, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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