Before the Global Financial Crisis, EUR/GBP cross spent years trading between .65 and .70. Obviously much has changed since then but we at FXIB cannot see a good reason for the Euro, with all its Sovereign debt woes, to still be trading 20% higher against the GBP. In our opinion it’s only a matter of time before the cross falls to .75 at least. What does that mean for the other crosses? If EUR/USD falls to 1.20 and EUR/GBP falls to .75, then we are forecasting that cable will be trading at 1.60. If EUR/USD rises to 1.40 and the cross falls to .70, then we believe that GBP/USD will be trading at 2.00. These forecast are based on previous price action before the Great Financial Crisis hit.

Taking a look at the GBP/USD Daily chart above, the white line is a 20 day Moving Average and is starting to turn up. The blue line is a 60 day Moving Average providing intermediate support. The green line is the 100 day Moving Average providing strong support at 1.5716. And of course the 200 day Moving Average is the purple line at 1.5423. We are looking to buy GBP/USD on dips toward the 200 day Moving Average. We believe that the UK government austerity programs will increase confidence in the GBP as the budget deficits are reduced and the economy manages to sustain growth. Only concern we have is that the Bank of England is not acting fast enough to control inflation right now, but as the BoE hikes interest rates to slow inflation this will support the GBP. We firmly believe that this year will be the year that makes or breaks the EU, unfortunately the longer the structural problems of the EU sovereign debt crisis remain unfixed, the higher likelihood we will see the EU collapse. Recent reports have indicated that if Spain needed to be bailed out that would be the catalyst for the EU breaking up. Given this backdrop, we foresee the GBP strengthening against the Euro and consequently against the US dollar.