EUR GBP UK Autumn Statement could fuel GBP rally

Today, UK Chancellor, Philip Hammond, will deliver the first Budget under Theresa May’s government. It could contain lots of surprises. I think that because of Brexit, Mr Hammond will unleash a spending spree to help support the economy. This could very well support the pound, which is lower across the board at the time of this writing. But the bigger surprise in my view would be if it contained no bold measures to boost the economy. If so, the pound could come under further pressure.

As the dollar pauses for breath after its big breakout last week, we thought it might be a better idea to look at the EUR/GBP rather than GBP/USD pair ahead of the Autumn Statement. The cross created an inside bar formation above the key psychological level of 0.8500 yesterday. Usually an inside bar pattern at or around a key support level is considered to be a signal that points to a turn in the down trend.

However, in the case of the EUR/GBP, this particular inside par pattern could be a bull trap. This view will be supported if price fails to hold above Tuesday’s range, around 0.8570. If so, the EUR/GBP will then likely fall all the way below the low of Tuesday’s range, which is the next logical area of liquidity as undoubtedly many bulls will have placed their stop loss orders there. In fact, if this were to happen, then the EUR/GBP could potentially go on to drop all the way to its 200-day moving average (0.8555) over time. So, it is really important to watch what happens today, especially around that 0.8570 level.

Conversely, if the bulls manage to hold their ground here then we could see a push towards the next resistance at 0.8635 or even 0.8705, before the EUR/GBP decides on its next move.