- EUR/GBP bulls remain in control, extending the bullish reversal from the 0.8720s as sterling takes a knock across the board while the dollar digs its heels in on a solid footing of the 96 handle and trades at its highest since August.
- ECB leaves its policy rate unchanged and reduced monthly QE purchases to $15 billion until the end of the year – Draghi recognized economic weakness, eurozone fragility, but expecting the underlying inflation to pick up towards the end of the year.
- “GBP is subject to more intense pressure running into year-end as the time for achieving a workable Brexit deal is now running very short,” analysts at Scotiabank.
EUR/GBP has been in a steady rising channel for the month of October, correcting the late summertime sell-off from a pip or so from the 0.91 handle, currently capped by the Weekly 21-SMA at 0.8878, having scored a high on Thursday in early NY of 0.8883.
The pair is fulled by continued Brexit angst, even though it seems that PM May has perhaps done enough to fend off a leadership challenge, for now. The saga goes on and some are even speculating that a proposed extension to the transition period under May’s leadership and subsequent of weak negotiations will drag on forever, well almost forever – warning of a “long-running” multi-year transition. Also, the risks of a no deal seem still very much realistic – UK Brexit Secretary Dominic Raab said today that the risk of no deal is real if the EU engages in an intransigent approach.
- Draghi speech: Still confident that good common sense solution will be found for Brexit
“We continue to feel that the GBP is subject to more intense pressure running into year-end as the time for achieving a workable Brexit deal is now running very short,” analysts at Scotiabank argued.
ECB left monetary policy unchanged but warns of risks
Meanwhile, the ECB left monetary policy unchanged at its meeting today, as widely expected but the euro dropped on the back of Draghi’s negative affirmation surrounding the risks imposed by Italy and that the monetary union was fragile, despite still expecting that underlying inflation will rise, and for the most part sticking to script. “We expect the ECB will underscore that asset purchases will end in Dec but the characterization of the economic outlook (which the president has said is “broadly balanced”) amid rising challenges may shape market expectations regarding when interest rates may rise (we assume H2 2019),” analysts at Scotiabank explained.
“With the US growing almost twice as fast as the EU, the Fed two years into rate normalization which the ECB has no plans to begin, and Italy and Brexit chipping away at European unity, the euro is set up for a fourth quarter swoon,”
– Joseph Trevisani, Senior Analyst at FXStreet.
EUR/GBP levels
EUR/GBP bulls continue their quest for a test of the 55-DMA and key resistance line up at 0.8903/02 which guard the August highs at 0.91 the figure. On the wide, we have the 0.9161 Fibonacci resistance before 0.9291 as the 2009-2018 downtrend line. On the flipside, bears need to get back below the 0.8723 Fibonacci retracement which is guarding the 8700/.8697 June low.
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