- EUR/GBP is currently trading at 0.8910, down from the US session high of 0.8924 having climbed from an early European low 0.8891.
- EUR/GBP is consolidating the recent climb from mid-Nov lows and 0.8910, R1, is acting as a hard resistance on multiple tests in recent trade, although had given way on broader time frames, all the way through to 0.8933/37, a historical level of stronger resistance.
- EUR/GBP is waiting on each political event’s sound bite and every word from European politicians surrounding Brexit and the Italian budget.
EUR/GBP has been scrambling over the summit of the late October highs but is falling shy of the target as continuous political headlines flow through the dealing rooms and financial media which keeps price action fickle. The latest advance from the bulls has been due to doubts as to whether UK’s PM May can get a Brexit deal through Parliament, let alone the UK out of the EU or even hold on to her job before the week is out. In fact, over the past week or so, the bookies’ odds on the chances of a second Brexit referendum have been shortening, and sterling is crumbling away due to the uncertainties and prospects of the UK crashing out of the EU without a trade deal with the EU.
On the flipside
On the flipside of all that, the euro is hampered by Italy’s hardball tactics with the European Commission, (EC), while at loggerheads with the EU over all of the indebted nation’s grandeur of a budget spending plan. The latest of which the EC has taken the first step towards sanctioning Italy over its national budget after the EU executive body rejected Italy’s draft budget back in October, telling the nation to make changes. The Europen Commision report today cited a “particularly serious non-compliance with the fiscal recommendation for 2019”, and Commission Vice-President Valdis Dombrovskis said: “With what the Italian government has put on the table, we see a risk of the country sleepwalking into instability.”
EUR/GBP has been tugged and pulled between 0.8820/8833 over the last couple of days and supported in more recent sessions by the 76.4% Fibo. However, the bulls have really stuck their heals in over the last couple of days. The price has pressed on through the 21-D SMA as pressures mount in favour of the bid while PM May heads to Brussels yet again where she is meeting EU officials as the two sides scramble to finalise a Brexit deal in time for Sunday’s summit of European leaders. The markets have been waiting for sound bites from a meeting that went on for an hour between May and EU’s Junker, but so far all we know is that they failed to finalise a deal over Brexit terms according to an EU spokesperson. It sounds like May will return on Saturday to press on with the negotiations ahead of the summits to work on the final texts of the withdrawal agreement and the future relationship. After all of that, the cross ended NY today at 0.8915, +0.31% and within Wednesday’s range of between 0.8923-0.8893.
Positioning shows further upside potential
Meanwhile, 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, so a paring back there will only intensify EUR/GBP’s momentum in a northerly trajectory.
EUR/GBP levels
Meanwhile, 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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