In July 2007, when the subprime mortgage crisis first hit, EUR/GBP traded within a long-term (dating back to 2003) consolidation between 0.6530 and 0.7020, most recently narrowing to 0.6675 and 0.6870. The first push of the Euro higher, between August and the end of October 2007, on the chart merely appeared to be an extension of that consolidation into the upper portion of its range; however, on 14 November it smashed through resistance and closed higher.

Between that date and mid-December, EUR/GBP traded within a new, higher range, with support at 0.7090 and resistance at 0.7240. However, prior to Christmas, the range again extended upward to 0.7390. Shortly after the turn of the year, it rose to 0.7510, and so on up the chart in a stair-step fashion. As each new resistance level was reached, the currency pair paused to consolidate, sometimes for weeks, sometimes merely for a matter of days, before pushing through and establishing another higher high. This is illustrated below on the daily chart:

At the end of February 2008, EUR/GBP approached resistance at 0.7695, the bright green line on the chart above. Repeatedly the level held until it was finally broached on 14 March, at which point the currency pair entered what can best be termed a concentric series of ranges, as illustrated below, still utilizing the daily chart:

For those wishing to mark their charts, the central blue line around which all the activity swirls is 0.7912. The inner level, marked by red lines, lies between 0.7986 and 0.7845; the orange level is 0.8030 and 0.7795, the yellow is 0.8100 and 0.7738, and the widest expansion, the green level, is the most recent reaction high at 0.8186 and the original resistance level, now transformed into support, at 0.7695.

This range has held for seven months. During times of low volatility it remained within the inner levels, but when risk aversion or some aspect of global instability struck, the graph shuddered over a wider portion of the chart. Since the beginning of October 2008, the pair shows signs of slipping into the lower levels, and it is currently testing the outer limits of support at 0.7695.

The path taken by this pair in the future—whether it remains within some portion of its established range, begins a stair-step descent, or climbs to a higher level—will depend upon future fundamental announcements. Both the U.K. and the Eurozone are slipping toward recession and neither currency is considered a safe-haven in the sense of the Japanese yen or U.S. dollar. The flow of funds will be determined by the level of confidence investors have in each nation, which in turn will be determined by the economic calendar. It is an unfortunate question of which economy is believed to be in worse shape or slowing more quickly than the other.

At the best of times the EUR/GBP is not a currency pair for nervous traders. It displays significant volatility and often spikes through established support and resistance levels, almost as if taking aim at the protective stops clustered on the other side. During “normal” trading times its volume is relatively low, although since 15 September, the “Black Monday” when Lehman Brothers declared bankruptcy and stock markets plunged around the world, its volume level has jumped considerably, as shown by the short but lengthening vertical white lines at the bottoms of both charts above