EUR/GBP Forecast: Euro Rallies Likely To Attract Sellers

The euro continues to struggle overall, as rates in France show signs of extreme stress at the moment.

EUR/GBP

The euro has rallied a little bit against the British pound after initially selling off on Thursday, as we are getting fairly close to a demand area.

All things being equal, this is a market that is still paying close attention to the idea that the interest rate differential will continue to be a major factor. Ultimately, British interest rates are much higher than those in Europe. Although Europe is closing the gap, unfortunately, the Europeans are seeing higher rates due to fiscal problems.

There are concerns right now about French debt, French fiscal behavior, and fiscal regimes, but we also are starting to see debt in the European Union get sold off in places like Greece and Italy. This is not inflationary debt; this is the bond market punishing people. That is completely different from the higher rates in the United Kingdom, which are more about inflation, suggesting maybe the Bank of England may have to rein that in by tightening rates.

From a technical analysis standpoint, this is an area that I think traders might be watching

I think any bounce at this point in time opens up the possibility of selling pressure near the 0.85 level, possibly even the 50-day EMA. If we were to break down from here, it is really not until we clear the 0.8350 level that the bottom falls out, and that would be very difficult.

With all of this being said, I like the idea that traders are looking at this through the prism of a market that is possibly a little oversold. Short-term hot money may try to save it, but we are clearly in a downtrend, and the situation, especially in France, still being what it is, makes it difficult to imagine a world where the euro has a lot of lift.