Despite the increasing economic difficulties in the U.K. (technically the economy is back in recession as GDP shows a drop of 0.3% in the first quarter of 2012) investors have not managed to reverse the downtrend on EUR/GBP started a year ago. The latest events in the eurozone, such as the difficulties of the Spanish banking system and the risk of contagion to Italy, have weakened a little more the euro. Therefore, the EUR/GBP is back to its trading range from 2008. The pair traded in this area of 0,775/0,805 for more than seven months.

The latest economic statistics published in the U.K. are not very encouraging. U.K inflation unexpectedly fell to its lowest level in two and half years. Consumer prices rose only 2.4% from a year earlier, its lowest level since November 2009. The euro has not taken advantage of this news. In fact, German ZEW economic sentiment declined for a third month as the eurozone debt crisis dimmed the economic outlook.

Besides, Ben Bernanke announced on Tuesday his intention to use monetary tools to support the U.S. economy. Yesterday morning the Bank of England voted to increase economic stimulus. The members decided to increase quantitative easing to 365 billion pounds. The euro took benefit from this announcement on Wednesday morning before erasing its gains in the afternoon. However, investors have tried to stabilize the currency pair around 0.783 for few days.

Technically, the euro could find some support on the lower bound of the range at 0.775/0.78 as suggested early this week on the pair. Quick recovery to 0.80 could release the downward pressure and eventually investors could test the 20 week moving average at 0.82 which has been a dynamic resistance since the summer of 2011. Conversely, the breakdown of the 0.78 support would open a downside risk.