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Euro Cross Pick 09.17.2012

David Song

As market participants turn their attention to the Bank of England Minutes due out on September 19, we may see the short-term rally in the EURGBP taper off ahead of the policy statement, and the pair looks poised for a move to the downside as the relative strength index continues to show an overbought signal. As the EURGBP remains capped by the 78.6% Fibonacci retracement from the 2008 low to high around 0.8140-50, we are looking to fade the rally from the July low (0.7751), but we will wait for the RSI to push back below 70 as the pair appears to be carving a lower top in September. Our bias remains tilted to the downside as the sovereign debt crisis dampen the outlook for the euro-area, while the sterling looks poised to outperform against its major counterpart as the BoE appears to be slowly moving away from its easing cycle.

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