EUR/GBP: 200 day MA holding, for now at least

• EUR/GBP is consolidating below S1 at 0.8842 having dropped from a high of 0.8876 to a low of 0.8834.
• The pound is solid and has risen from the 1.2920’s to score a high of 1.3042 on reports of UK PM May’s latest Brexit plan to avoid “extensive” border checks in Ireland that is making headway with the EU.  

EUR/GBP has broken below the key support level at 0.8848 and is extending its losses within the descending channel that commenced from highs of 0.8975. The 100-D SMA has been breached  and sights are on S2 located down at 0.8824 as sentiment tilts in favour of the pound.

“May has reportedly suggested the whole of the UK will remain in customs union with the EU in the absence of a comprehensive Brexit border deal and will aim to get her plans approved by parliament rapidly, in order to avert prolonged infighting within the Conservative party – parts of which will not support this approach,” analysts at Scotiabank have explained while remaining cautious and suggesting that the pound will remain sensitive to Brexit headlines in the near term and warning that downside risks remain in the weeks ahead.

Italian budget drama is not over yet

Meanwhile, the Italian budget drama is not over yet. Italy’s Finance Minister Giovanni Tria has backtracked on the government’s medium-term budget plans following negative reactions from financial markets and the European Commission (EC):

“Having previously targeted a deficit of 2.4% of GDP in each year out to 2021, Tria announced on 3 October that the deficit would instead be trimmed to 2.2% in 2020 and 2.0% in 2021, prompting a retracement of Italian bond yields. However, despite Tria’s comments, we still think there is a good chance that these targets will be deemed non-compliant with EU fiscal rules once key growth assumptions are presented to the Commission (by 16 October at the latest),” analysts at Standard Chartered Global Research explained, suggesting that the prospect of an early general election being called (potentially by mid-2019) will rise too.

EUR/GBP levels

EUR/GBP has broken below the  5-month uptrend  that was located at 0.8865 although the  200 day ma at 0.8839 is holding the downside which may  provoke a recovery. “We should then see a rally to the .9011 level and the August high at .9031. Above .9011/31 sits the .9101 August high. Above there would target the .9161 Fibonacci resistance and then the .9291 2009-2018 downtrend line,” analysts at Commerzbank argued.