Current trend

This trading week the European currency has been significantly strengthening against the Pound. On Monday, the pair was traded in the narrow channel and finally consolidated at the level of 0.7200. Investors were waiting for the resolution of the Greek issue. On Tuesday the European currency sharply went up, as it was clear that Greece came to an agreement with EU in terms of the extension of the aid program. Due to thus news, the demand for Euro has increased; however, it is not clear yet if positive forecasts are relevant.

The pair EURGBP continues to grow, amid significant weakening in the British currency. Note that PMI in the British service sector (Markit) fell below all possible expectations amounting to 56.5 points. At the same time, unemployment in Eurozone fell by 0.1%, while retail sales rose by 2.2%.

Tomorrow special attention shall be paid to the decisions of the Bank of England on interest rate and the volume of assets purchase program.

Support and resistance

Over the last trading says the rise in Euro was triggered by several fundamental factors. First of all it is the resolution of the Greek problem, the rise in retail sales and the decline in unemployment rate in the countries of Eurozone in April. However, why the Euro has not boosted to grow testing new highs? There is a simple answer to this question. Although the EC authorities came to agreement with the Greek government to extend aid program, it looks more   like a delay of the default than the final resolution of all problems. Eurozone is ready to give new tranches and Greece promises to pay off the debts and implement reforms to improve economic situation in the country.

However, skilled investors realize that these reforms will take time, which means that in 4 months time the issue of Greek default will be raised again.

Therefore, it is likely that the European currency will strengthen for the short term amid the weakening in the Pound and will decline in the medium-term.

 

Support levels:  0.7250, 0.7230, 0.7200, 0.7170, 0.7150, 0.7125, 0.7110, 0.7085, 0.7050 and 0.7015.

Resistance levels:  0.7280, 0.7305, 0.7330, 0.7385, 0.7410, 0.7450 and 0.7480.

Trading tips

In the current situation it makes sense to open short positions from the current level of price and from the key resistance levels of 0.7385 and 0.7480 and take profit at the levels of 0.7100 and 0.7015.

EUR/GBP: suspension in action instead of the resolution of the problem




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