EUR/GBP Monthly Technical Analysis for November 2015

The EUR/GBP sold off in October, weakened by the strong possibility of fresh stimulus from the European Central Bank as early as December. The Forex pair closed at .7130, down .0257, or 3.48%.

European Central Bank President Mario Draghi delivered the decisive blows that crashed the Euro against the British Pound with his comments about extending and expanding QE while surprising investors with talk of a rate cut and a “vigilant” hint of imminent action. 

Comments that helped break the single-currency included, “It was not a wait-and-see, but it was a work-and-assess”. He also said, “We are ready to act if needed, we are open to a whole menu of monetary policy instruments.” Finally, he added, “The degree of monetary policy accommodation will need to be re-examined at our December policy meeting when the new…projections will be available, referring to quarterly growth and inflation forecasts issued by ECB staff economists. 

I interpreted Draghi’s comments to mean that if QE isn’t working then do more. This is basically the same steps that other central banks have taken. If the Euro Zone economy doesn’t improve in the next month then look for a major Christmas present from the ECB in the form of an interest rate cut, an expansion of the ECB’s 1.1 trillion bond-buying program and an extension of the purchases beyond September 2016.

 The primary focus early this month will be on the BoE’s monetary policy statement on Thursday, November 5 also known as “Super Thursday”. The BoE is widely expected to keep interest rates unchanged at a record low of 0.50%. However, investors should look for increased volatility because the central bank is also expected to release its update quarterly Inflation report. BoE Governor Mark Carney is also scheduled to speak. He is expected to continue to prepare businesses and households for higher borrowing costs.

Technically, the main trend is down according to the monthly swing chart.

Based on the close at .7130, the first downside target is a long-term uptrending angle at .7065. This level may act like support on the initial test, but it is also a trigger point for a sharp break into the July 2015 main bottom at .6935.

On the upside, the nearest resistance is the October high at .7492 and the May high at .7482

Unless there is a rapid turnaround in the Euro Zone economy, the EUR/GBP is expected to continue to weaken in November as investors prepare for the next move by the European Central Bank in December.