The UK job’s release and the EUR/GBP pair has been holding strong since early last week. Both were performing well at the time of this writing. Now both have fallen back a bit.
How far will the drop go? On current trends, it is very likely that the EUR/GBP will fall back below its June 2020 peak, as is normally the case. The fall might continue for some time but not for longer than the week, which would mean that the pair is now in an uptrend.
Will it move further down towards the pound or hold the level it is currently at? The euro’s fallback has been slow so far, although not weak. The GBP/USD has fallen to an all-time low. It is now at its lowest levels ever.
It would be a surprise if it moved much further, although you can never rule it out that something will happen. On its current downward trend, the EUR/GBP is following the same pattern that we saw during the “flash crash” of late May. There were many people who bought into the news that the EUR/GBP was heading for lower values, but they held off until the news had been debunked.
At that point, it seemed to gain momentum. The market reacted to this and soon there was a sharp rise. Then, the market reacted again and the upward trend reversed. The market took a very long pause before it finally realized that this was just a mini flash crash and got back on track.
This pattern is no different from what we are seeing now, although at two different points. At the beginning of the summer, many believed that the EUR/GBP was headed for a fall.
Some were buying short position in the name of “expert advice,” but most believed that the market had reached such a low that there was no reason to buy more. Some were even saying that the market had hit bottom and was now on a corrective path, before we see another move higher. The latter view has now gained some credibility.
It looks like the British pound will slide further downward before getting back to the June 2020 high. If it does move lower, we may see another flash crash in the future. We have had one now in six months. Of course, that does not mean that the fall will be any faster this time around.
One of the group financial analyst, Phil Bennett, recently released his short thesis. His argument is that we are in a mini flash crash. The EUR/GBP is down more than 50% since the end of April.
This will create currency wars around the world, and this could lead to a situation similar to what happened in late 2020, when the US dollar collapsed due to the political crisis in Europe. In that case, investors sold their foreign currencies. They did so because they thought that the United States had run out of liquidity.
Therefore, it is possible that the EUR/GBP may fall to a point where it would devalue to something like the LTCM and will then either rebound or plunge again. I would keep a close eye on this market, but it is possible that it will stay where it is.