The euro enjoyed a huge run up against the British pound, approaching parity in late December based on weak British fundamentals, including weak job and housing markets, slowing growth and huge levels of consumer debt, explains John Kicklighter, currency strategist for DailyFX.com. Now we are at the tipping point.
The Bank of England (BoE) cut interest rates to 1.5%, the lowest since the creation of the bank in 1694, and the European Central Bank (ECB) is likely to follow, weakening the euro relative to the pound. Resistance is parity, support is at 0.7750, he says.
The ECB is far behind on monetary policy, explains an analyst for Trade the News. But now that CPI is below 2% in the Euro zone, the ECB will have the credibility for aggressive rate cuts and it becomes an interest rate play.
“The European economy is breaking down faster than people expected,” says Jack Crooks, president of Black Swan Capital, with unemployment rising in Ireland, Portugal and Spain and declining German exports. “The ECB is going to head into the Fed territory pretty quickly. The euro is losing that yield appeal that gave it that big bounce when the Fed really cut rates,” he says. Resistance is parity and support is 0.86 and may be as low as 0.83.
