EUR/GBP bounces off 20-month lows, finds some support ahead of 0.8600 handle

   “¢   The shared currency continues to be weighed down by dovish ECB outlook.
   “¢   Diminishing prospects of a no-deal Brexit underpin GBP and exert pressure.

The EUR/GBP cross finally broke out of its Asian session bearish consolidation phase and trimmed a part of its early decline to the lowest level since May 2017.

The British Pound remained a relative outperformer, especially against its European counterpart, with a combination of forces continuing to exert downward pressure on the cross for the fifth consecutive session. Against the backdrop of receding risks of a no-deal Brexit, the Sterling got an additional boost from the latest news that Ireland’s DUP was prepared to conditionally back the UK PM Theresa May’s Brexit Plan B.

Meanwhile, a more dovish shift by the ECB President Mario Draghi at the post-meeting press conference, saying that risks to the Euro-zone growth outlook have moved to the downside, was further reinforced by comments from a duo of ECB governing council member members on Friday.

The ECB governing council member Benoit Coeure said that that the ECB may have to adjust rate guidance at some point as the recent economic slowdown has surprised the central bank. This followed comments by ECB’s François Villeroy that we remain committed to keeping interest rates low and any reduction of stimulus will be very gradual.

The cross dropped to an intraday low level of 0.8617, or 20-month lows, albeit now seems to have found some support amid near-term oversold conditions, especially after the recent slump of nearly 500-pips from the 0.9100 handle, touched at the beginning of this month.  

Moving ahead, today’s only relevant release of German IFO survey for January might influence sentiment surrounding the shared currency and will be looked upon for some short-term trading opportunities. This coupled with the incoming Brexit-headlines might continue to infuse some volatility on the last trading day of the week.

Technical levels to watch