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EUR/GBP has made a significant downwards breakout, reaching a 4-month low. Here are some of the reasons and the technical levels to watch.

EUR/GBP broke under the 0.8852 line that was the low on December 17th. It also went below the November 17th low of 0.8834.

At 0.8820 (at the time of writing), it’s at its lowest level since September 15th. The area of 0.8840, which was a bottom so many times, was finally broken. EUR/GBP is high on my list of predictable currency pairs.

European problems, British cautious hopes

The reasons lie mainly in the Euro-zone: Greece’s debt problems are from over, now under scrutiny also from Jean-Claude Trichet, the president of the European Central Bank. Portugal and Spain also continue to have debt problems.

German politics are also weighing on the Euro: troubles in Merkel’s coalition have spurred a rumor that she would resign took the Euro down. While this rumor has been officially denied, the Euro is still hurt, with EUR/USD going below 1.444 and also below 1.4400.

In Britain, there are some reasons for cautious optimism: like last month, the NIESR GDP estimate showed that Britain’s economy grew by 0.3% in the fourth quarter, meaning an end to recession after struggling.

GBP/USD managed to settle above the 0.6270 line that blocked it during recent weeks. Also other British indicators were OK.

EUR/GBP Technical Analysis

So, these British improvements, and especially the Euroland problems took the pair down. The 0.8840 line is critical. Apart from the bottoms mentioned beforehand, 0.8840 was also peak in August.

Further down, 0.87 is a clear line of support. It served as a peak in July and a bottom in September. Even lower, 0.8570 is a minor line of resistance, 0.8450 is stronger and 0.84 is huge – it wasn’t breached in over a year.

If the break isn’t confirmed, EUR/GBP may bounce back to the previous range – 0.8840 to 0.9067. Further up, 0.9157 is a significant point of resistance, followed by 0.9420 and 0.95 in the far distance.

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