EUR/GBP Monthly Technical Analysis for January 2015

The EUR/GBP took another hit in December as speculators drove the Euro lower in anticipation of the start of quantitative easing by the European Central Bank in early 2015. Although the Bank of England is still dealing with an inflation rate below its 2.00% mandate, the ECB is facing even bigger problems because of the threat of deflation.

The fate of the currency pair should be determined early in the month when the Euro Zone inflation data is released. If the current trend of lower inflation continues then look for traders to sell the Euro ahead of the ECB monetary policy meeting on January 22. If inflation is bad then the ECB will make the much anticipated QE announcement. This could put further pressure on the EUR/GBP.

The Bank of England is dealing with a similar problem, but it believes low inflation in the U.K. is a temporary issue. It is not likely to raise rates until its inflation rate flattens out then moves higher. If the issues in the Euro Zone continue to hurt the U.K. economy then don’t expect the BoE to act until much later in the year.

The EUR/GBP closed on a weak note in December. This should lead to early downside momentum in January. The first target to be taken out is the July 2012 bottom at .7754. This should create enough downside momentum to drive the market into the October 2008 bottom at .7693. The next target under this level is a downtrending angle at .7599.

The tone of the market this month will be determined by trader reaction to .7754.