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Towards the ECB meeting on January 22nd, there could be more room for the euro to the downside against both the dollar and the pound.

The team at Barclays explains the rationale and levels on the charts:

Here is their view, courtesy of eFXnews:

Currency investors should consider starting short EUR/USD and EUR/GBP into this week’s ECB meeting, advises Barclays Capital in its weekly FX pick to clients.

We expect the ECB to announce the expansion of its asset purchase program to include European government bonds at its 22 January meeting. Last week’s Advocate General’s opinion on behalf of the ECJ cleared many residual market doubts and enhanced the likelihood that the ECB will be announcing Quantitative Easing (QE) in the form of European Government Bond (EGB) purchases at its 22 January meeting, in our view,” Barclays projects.

“With negative inflation of -0.2% y/y in December and only a limited expansion from the current asset purchase programs (including CBPP3, ABS and TLTROs); we think both ECB contingencies to justify additional easing have been met,” Barclays argues.

We continue to forecast significant EUR depreciation from current levels as poor relative returns to capital continue to discourage EUR ownership and recommend staying short EURUSD, as well as short EURGBP into next week’s meeting,” Barclays advises.

EURGBP from a technical perspective Barclays January 19 2015 euro pound chart

On further EURGBP potential downside, Barclays technical strategists are now looking for further downside traction towards targets in the 0.7390 area, with room below seen towards a confluence of support near 0.7260.

Any upticks are likely to be capped by resistance in the 0.7800 area and should be used as an opportunity to sell at better levels,” Barclays adds.

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