EURGBP--Friday, May 14, 2010
During this ongoing decline in both the euro and sterling, I thought it might be interesting to look at what the cross between the two is doing.
The Longer Term View
First, looking at the long term, we see that there was an extreme impulsive bull move in EURGBP in late 2008. This move came from an alpha-beta base formed in the fall of 2008. 2.618 times this base would have projected a top just below 0.9000. But in the panic (and thin markets) of the last few weeks of 2008, 2.618 (or phi squared) was not enough. The next target would be phi raised to the third power, 4.236 times the base. That would give a target of 0.9783. The high of the move came on December 30, 2010 at 0.9802, a scant 19 pips above the theoretical target. After that, the market moved down in a succession of zig zags, bottoming out in June of 2009 around 0.8400. This was slightly below what had been the 1.618 target during the up move. And, indeed, since that time, anytime the market has dropped below 0.8500, it has provided a buying opportunity.
A Shorter Timeframe
Now looking at a shorter, more recent timeframe, an eight hour chart shows a similar impulsive move, with the same Fibonacci relationships, but this time on the downside. WIth an alpha beta base formed between April 9 and April 14 of this year, the 1.618 extended target of this base was 0.8605. The market found some support around this level in late April. The 2.618 target was 0.8445. You can see what happened right before the weekend when the Greek crisis was "settled." We found a floor around that 2.618 target. Traded up on massive short covering, then quickly reversed and fell back to that level.
Since that time we have bounced again. Once again--although on a very short term time basis--EURGBP dropping below 0.8500 (especially if you can get it around 0.8450) has presented a great opportunity to make a little profit.
And Finally, A Very Short Timeframe
On a very short term basis we have seen in the last few days a classic impulsive pattern on the upside, with a 2.618 extended target met earlier today. This can be seen on a 30 minute chart. Same pattern, different time frame.
The high this morning was within a pip or two of the 2.618 target. Since then the pair has fallen to a minor Fibonacci level (1.272). The high of this short term impulsive move has retraced about 0.382 of the longer term (but still quite short term in the bigger picture) pattern shown in the 8 hour chart above.
The question remains--despite this bounce from the support area below the 85 handle--how long this level will remain valid support. It has done so since the high in late 2008. WIll it do so much longer?
