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  • EUR/GBP has been on the offer with sterling strength popping up through the channel’s ascending resistance.
  • Currently, EUR/GBP is trading at 0.8879, slightly up from 0.8878 and en-route to 0.8904.
  • The question here is whether the pound can continue higher and what is happing in the dollar.  

The pound is bid on cautious optimism around Brexit. This has proven to be a fickle bid in the past on ever-conflicting Brexit sentiment. The latest optimism has continued for some weeks now.  However, at the same time, growth is probably going to be a little stronger in Q3 – in fact, The Bank of England now expects GDP to grow by 0.5% in Q3. However, an expansion at that pace would fit with the MPC’s view that demand is growing slightly faster than the long-term supply potential of the economy, estimated at just 1.5% a year, and that means rates should continue to rise, eventually – as analysts at RBS Economics explained.  

Markets turned bullish on the pound

Positioning has turned more hostile toward sterling shorts although we are bound to see some volatility over the next autumn period due to the political noise surrounding Brexit – But any good news is likely to see some good upside in the currency that still has plenty of space to fill on the charts since April’s sell-off vs the dollar up at the 1.4370’s – a move that started on the back of a resurgent dollar as well as the indications from the Bank of England that it may not raise interest rates, (which was a factor that had pushed the pound higher and from similar levels in December 2017 as today’s spot). The move that countered fifteen years of bullish seasonality for the pound during the month of April – which had tended to rally no matter what the political/macro backdrop. But one digresses, and the matter at hand is whether the dollar is going to remain defensive below the 96 handle in DXY which should give bulls room to breach the 100-D SMA in cable, or, on further trade war angst or central bank divergence, (BoE on hold until after 29 March 2019 Brexit day/Fed intent on raising rates), move back in on the 95.70 resistance. EUR/GBP is likely to remain more sensitive to Brexit noise although the pound leg of the cross more so. Analysts at TD Securities argued that a break above (the 100-day moving average) in cable would open the 26th July high of 1.3213. “Ahead of this, we note support should be found at the 1.2980/85 and 1.2930/35 zones. We think we will need to see a daily close below 1.2900 to look for a deeper retracement toward the 15 August cycle low (1.2662).”

EUR/GBP levels

Analysts at Commerzbank note that EUR/GBP has sold off to the 5-month uptrend but they look for it to stabilise and recover from here:

“In this vicinity, we find the 0.8860 50% retracement and the 200-day ma at 0.8836 and while there is scope for these to be tested, we look for them to hold and provoke recovery. Note that the 0.8850 55 week ma is also found here. We should then see recovery once more to the 0.9101 recent high. Above here would target 0.9161 Fibonacci resistance and then the 0.9291 2009-2018 downtrend line.”

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