EUR/GBP Monthly Technical Analysis for December 2015

The EUR/GBP finished lower in November. The weakness in the Euro was fueled by expectations of additional stimulus by the European Central Bank. The Bank of England isn’t expected to raise interest rates until late 2016 or early 2017. However, at least the U.K. economy is holding steady enough to avoid the need for additional stimulus. So once again, it’s the divergence between the monetary policies of the ECB and the BoE that is driving the EUR/GBP lower.

On December 3, the ECB is expected to make its announcement about further stimulus. This news is widely expected. If the central bank delivers what traders have been anticipating then there may be some light short-covering. If the ECB stimulus is less than expected then look for a strong short-covering rally.

Technically, the main trend is down according to the monthly swing chart. The Forex pair is in no danger of changing the trend to up, but momentum could quickly shift to the upside because of the formation of an elongated support base.

Based on last month’s close at .7015, the direction of the market today is likely to be determined by trader reaction to the uptrending angle at .7070.

A sustained move over .7070 will indicate the presence of buyers. This could create enough upside momentum to trigger a rally into a short-term pivot at .7203.

A sustained move under .7070 will signal the presence of sellers. This may lead to another test of the July bottom at .6935. Taking out the bottom could generate enough downside momentum to challenge the next uptrending angle at .6803.

Watch the price action and read the order flow at .7070 this month. Trader reaction to this angle will tell us whether the bulls or the bears are in control. If the ECB delivers a weak stimulus package then look for a short-covering rally to overcome the angle at .7070. A strong stimulus package will likely drive the Forex pair through .6935.