EUR/GBP Monthly Technical Analysis for November 2014

The EUR/GBP had an expanded range last month, matching the previous month’s trading action. This month, however, support at .7765 held and the market closed higher.

The action in the Forex pair in my opinion didn’t represent any major shift in sentiment. Both the U.K. and Euro Zone economies remain weak. The only difference was the consolidation by the Euro late in the month. The better-than-expected Euro Zone inflation news late in the month may have given the EUR/GBP a little boost going into November.

The British Pound weakened, as traders pushed back expectations of the timing of a Bank of England rate hike amid signs of a slowing economic recovery. The catalyst behind the weakness was weak economic data including U.K. mortgage approvals which fell for a third month and slowing home prices.

The Bank of England left its benchmark interest rate unchanged as well as its stimulus. Traders also reacted negatively to BOE Deputy Governor Jon Cunliffe who said the central bank will keep rates low and continue to provide stimulus as long as it can while keeping inflation in check.

The BOE’s next Monetary Policy Committee to decide interest rates is on November 6.

The pressure will be on the European Central Bank this month because I believe the surprise stimulus by the Bank of Japan is going to force the ECB to make a bold, aggressive move regarding fresh stimulus. If they announce additional stimulus then look for the EUR/GBP to weaken.

The first support target is the September low at .7765, followed by the July 2012 bottom at .7754. Taking out this level with conviction could trigger a sharp break into the October 2008 bottom at .7693.

Given the volatility the last two months, a surge to the upside is possible, but it is likely to be capped by a major retracement zone at .8082 to .8157.