Despite an economy that is sinking deeper in recession, British Pound has done quite well against the euro. One of the causes is the uncertainty about eurozone due to the Greek crisis.

As Greece grapples with her debt and insolvency issues, the number of alternatives available to her is decreasing. One alternative is that she leaves the single currency. However, under the current EU law, she will also have to leave the euro zone. Though, the law could be modified or not adhered to, it is creating lot of uncertainty for corporations who do business in the EU.

Many legal counselors to multi-nationals doing business in the EU are recommending removing liquid assets from Greece. Major companies are going beyond that. Some like Vodafone and GlaxoSmithKline, are moving money out of not only Greece but most continental countries into Britain every day. They have been doing since early last year. This has increased the exchange flow into British Pound making it, at least with respect to euro, a safe haven for the time being despite a weakening UK economy.

The chart below says that GBP had not always fared so well against the euro in risk-off environment.

For most of the time from 2005 to 2007, EUR/GBP stayed within a narrow horizontal consolidation channel (channel 1 in the chart) between 0.71 and 0.65. In November 2007, it broke out and quickly reached another higher consolidation channel (channel 2 in the chart) between 0.80 and 0.77. This second consolidation channel marks the half-way point to the eventual move high to 0.98.

The break out from channel 2 coincided with the market-panic induced due to the financial crisis, which started in the US. This was the risk-off period and, still, euro gained against the British Pound – almost reaching parity.

After reaching an all time low in December 2008, GBP has generally appreciated against the euro. This appreciation has increased with the news of eurozone’s debt crisis. As more bad news come out of the continental Europe, GBP takes another leg down – mostly in ABCD patterns, not all of them perfect or classic.

The chart marks four such patterns.

The first pattern is the move down from December 29, 2008.

A1 = 0.98045 – week of 29-Dec-08
B1 = 0.86385 – week of 9-Feb-09
C1 = 0.95010 – week of 16-Mar-09
D1 = 0.84000 – week of 22-Jun-09

CD is 94% of AB with respect to the PIP move and 233% with respect to time.

This ABCD pattern is also within a larger pattern.

A2 = 0.98045 – week of 29-Dec-08
B2 = 0.84000 – week of 22-Jun-09
C2 = 0.94116 – week of 12-Oct-09
D2 = 0.80680 – week of 28-Jun-10

CD is 96% of AB with respect to the PIP move and 148% with respect to time.

The third ABCD pattern is a correction of the overall move down starting from December ’08.

A3 = 0.80680 – week of 28-Jun-10
B3 = 0.89414 – week of 25-Oct-10
C3 = 0.82850 – week of 10-Jan-11
D3 = 0.90831 – week of 27-Jun-11

CD is 91% of AB with respect to the PIP move and 141% with respect to time.

The fourth ABCD pattern – a move down – is currently underway.

A4 = 0.94116 – week of 12-Oct-09
B4 = 0.80680 – week of 28-Jun-10
C4 = 0.90831 – week of 27-Jun-11

By the end week of 21-May-12, the CD leg has covered 84% of the AB leg in PIP terms and 124% with respect to time. If the pair sticks to the averages of the previous ABCD patterns, then it has some more ways to go. The average length of CD leg is 94% of the AB leg in PIPs and 174% in time. That will give a target in the neighborhood of 0.782 around October 6, 2012.

As of now euro has given back all the gains after the break out of the channel 2 in November ’08 and has now fallen below the upper channel line. The target of 0.782 will bring it to the lower end of channel, where it may find support at October ’08 lows.