Rule Britannia? The British Pound Rises Over European Currencies

The recent action in the European crisis has been one headline after another, with a lot of drama unfolding in between the announcements. It has been a lot like watching MTV: All noise, and everyone wanting the rest of the world to pay attention to their particular “issues.”

Let’s be honest here: The Europeans are screwed.

There, it has been said, and I am actually one of the “doomsday prophets” that believes the Euro won’t exist in its current form soon. I don’t know if the Euro will completely collapse, or if the list of countries using the currency will shrink. None the less, many people have given me grief about this over the last couple of years. However, here we are three years into the crisis. Many of those people would have never guessed we would still be going through this. However, they forget the number one rule of politics: Kick the can down the road, and leave the difficult decisions to the next guy. Well kids, Europe has reached the point where that can’t be done anymore, and it is because of that I figured this would carry on for some time. Politicians simply aren’t wired to do tough tasks. In a lot of ways, they are the weakest among us.

Looking around the Forex markets, there is one thing that I see happening today: British Pound strength in comparison to it’s neighbors. The EUR/GBP is falling and has broken down through the bottom of a bearish flag. The 0.80 level is now crucial, and if we get a close below that – this pair could fall to the 0.76 level based upon the measurement of the “pole” of the flag.
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Looking at the other major currency in Europe, we have the Swiss franc. The Swiss National Bank has been working against the rising value of the Franc for some time now, most notably with the “floor” of 1.20 in the EUR/CHF pair. What hasn’t been as widely noted is the fact that the SNB has announced that they are buying the British Pound to help with reserves as well.

Looking at the chart, the bullish flag has been broken through during today’s session, and the 1.50 level seems to be giving way. A daily close above the 1.50 level would be a bullish sign, and I would expect a move to the 1.58 handle based upon the pole of the flag in this pair.
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With the issues in Europe, it isn’t hard to imagine an exodus of capital to the UK. After all, there are a lot of concerns about the depreciating Euro, and large companies would be best served by moving away from the sinking ship that is Europe at the moment. Don’t get me wrong – I am not calling for a complete collapse, but you can’t argue with these charts…..