The euro rallied against all of its major trading partners after the left leaning Syriza party achieved a majority in Greek Parliament. Funding from the Troika (IMF, European Commission, and ECB) runs out on February 28th, so newly elected Prime Minister Alexis Tsipras will quickly try to come through on his promises of keeping the euro, stopping large tax increases and spending cuts. Early in London, the euro rallied off an 11 year low to the dollar and seven year low to sterling. The rebound may be temporary, but the move higher could be accompanied with some short covering.
While yields on both Spanish and Italian bonds have come down, the focus over the coming months will come to their struggling economies and that may provide a key backdrop for further euro weakness. Meanwhile in the UK, optimism is starting to grow as wages are strengthening and lower oil costs may provide extra support for the economy.
The EURGBP weekly chart shows that current bearish stance that has been in place since the end of 2008 is poised for another steep decline. So far this week, price has rebounded after potentially forming a bullish ABCD pattern Point D of the pattern may be confirmed with the 200.0% Fibonacci expansion level of the B to C leg. If this countertrend move continues, we could see seller return around .7555, which is the 23.6% Fibonacci retracement level of the C to D leg. Only a daily close above .7750 may see an extended pause to the longer-term bearish bias.
Major downward targets include .7100 to .7250 zone. It is around that area that a bullish Gartley pattern may form. The psychological .70 handle will be a key price barrier and if that level breaks the next level of support will come from the 2007 low at .6553.
The trade: Sell EURGBP at .7555 with a stop loss at .7605 and a take profit at .7155. The Risk/Reward Ratio is 1: 8
Edward J. Moya
WorldWideMarkets Online Trading