The euro fell below the April 9 low of 0.8706 today on growing concerns about the indebtedness of Greece, Portugal and Spain. Now, a continued to fall to the January low of 0.8601 looks likely.
There is some support at the 100-week moving average at 0.8656 but the market is clearly favouring the GBP over the EUR.
Fundamentally, there is reason to like this trade as well. The market now seems to have come to terms with a hung Parliament in the UK and past history has shown that the GBP can still rally in such a situation. Now, the focus has moved to a growing inflation problem in the UK. With the consumer price index over 3% in the UK and still showing signs of momentum it is highly likely that the BOE will raise interest rates before the ECB (or the Fed for that matter).
With the concerns continuing to mount about Greece and Portugal, the euro is in bad shape. Debt spreads rose to a record high of 522 basis points in Greece today and even a rescue package may only prove a brief respite. It seems the market is now also targetting Portugal, where spreads also hit a record high today.
Expect this pair to fall to at least 0.8400 but exit the trade if the downtrending channel is pierced on the upside.