- EUR/GBP is now consolidating as cable gets held up at 1.28 the figure, with the price oscillating at around 0.8890 within a chop of between the day’s range of 0.8874 and 0.8923.
- EUR/GBP has been capped in its bullish tracks after a number of positive sessions since the middle of this month – set for a full recovery of the late October sell-off from 0.8940. The Brexit angst has been a heavyweight on the pound in recent weeks.
The situation regarding UK politics and Brexit has intensified and should the UK look as though it is about to crash out of the EU next year without a deal, the cross could well break above parity. From a positioning perspective, the pound remains vulnerable and while shorts have dropped back in recent data, there is still plenty that that market can add and given how elevated the euro shorts are, a paring back there will only intensify EUR/GBP’s momentum in a northerly trajectory.
However, the weakness in Germany and ongoing concerns as Italy and the EC remain at loggerheads is likely to weigh also, although ECB President Draghi retains a constructive outlook, albeit the path of the path of normalization and QE tapering will be slow, anchoring the front end of the curve.
Brexit in focus / Will there be a no-confidence vote in Theresa May? / Carney seems quietly confident in smooth Brexit transition
On the other hand, and as if by magic, UK’s PM May can pull a rabbit out of the hat in time, the BoE theme would quickly bounce back into play and likely send sterling on a tear across the board. The two main things to look out for in the near-term are whether there will be a no-confidence vote in Theresa May and whether the supporting party, Ulster’s DUP, will pull its support for the government.
Meanwhile, Carney spent most of his time talking about Brexit when testifying before the UK Parliament’s Treasury Committee today. The pound actually got a lift on a fairly upbeat assessment from the governor when he said that they assume a smooth Brexit transition and a withdrawal agreement would support the UK economy. He declined to say if no deal Brexit is more likely, although said that he is confident that BOE has all the measures it could have in place for financial stability.
- Carney: No-deal Brexit would be very unusual situation
- Carney’s speech: UK-EU withdrawal would support UK economy
- Carney’s speech: Volatility in Sterling very high
- BOE’s Haldane: Brexit uncertainty could make for a weaker Q4
- BOE’s Cunliffe: Expect gradual tightening of policy
EUR/GBP levels
The recent resistance has capped the cross for the time being, however, a break there, 0.8940 opens the July peak at 0.8960. The early August and September highs are located at 0.9031/54. On the downside, there is a support zone between the July low at 0.8799 and the November 12 high at 0.8774 that guard October’s key support level at 0.8723.
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