The European Central Bank (ECB) meeting minutes confirmed that the central bank is considering a lower path for interest rates. Market expectations are that the ECB cuts interest rates in December. With the Eurozone economy expected to remain weak well into 2016, the ECB remains vigilant on inflation. From the ECB, "vigilant" is often their signal to markets of an imminent interest rate cut. Given the political rhetoric, particularly in the United States, it is very interesting that the ECB sees the recent migration flows into Europe as a good thing for its economies because of the potential increase in government spending and construction to accommodate recent refugees. While the growth in the Eurozone had been improving slightly, the ECB expects growth to slow considerably going forward. Consequently, this fundamental landscape has sent the euro into a massive selloff for the past six weeks. The highs at 0.7492 not only held resistance at the major 0.7500 resistance level but, more importantly, also at the large 50% Fibonacci level at 0.7497. This hold of resistance here, coupled with the bearish euro fundamentals, puts the EUR/GBP in a Fibonacci move lower back in the direction of the trend. This Fibonacci move reignites the downtrend in the EUR/GBP if price can hold below the major 0.7000 support and psychological level. In fact, the EUR/GBP targets a new low lower than the previous lows at 0.6929.

The 0.7100 is a key level for direction in the EUR/GBP (Volume 22). The first attempt at the 0.7100 support level was met with bids due to new expectations of a dovish BoE several weeks ago. The EUR/GBP closed the week above the 0.7100 support level and started to build a bullish divergence at those lows. Markets looked for this bullish divergence to accelerate EUR/GBP buying last week. However, the bullish divergence on the daily chart became invalidated as the EUR/GBP closed the week below the key 0.7100 level for the first time since July. Price action is a stronger signal than momentum. As such, the EUR/GBP moved lower still and dropped below the 0.7000 major psychological and support level last week. However, the EUR/GBP found support at the 0.6980 level and momentum began to build another bullish divergence. With a confirmed close below the key 0.7100 level on the weekly chart, the EUR/GBP still maintains a bearish bias despite the bullish divergence in momentum. Therefore, any rally is likely to be met with offers in the sell zone.

Outlook for the week: ...

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