EUR/GBP alternates gains with losses near 0.8950

• EUR/GBP gyrates around the 0.8950 region on Monday.
• The sterling stays bid despite (usual) political effervescence.
• German Business Climate improved to 79.5 in May.

The now better mood in the British pound is forcing EUR/GBP to ease some ground following last week’s peaks in the 0.9000 neighbourhood.

EUR/GBP failed to break above 0.9000

After clinching fresh 2-month highs in the 0.9000 region last week, EUR/GBP came under some selling pressure on the back of the renewed sentiment towards the greenback, which in turn hurt the demand for both the quid and the shared currency.

In the meantime, the sterling remains unfazed by another round of UK political effervescence, which now has government adviser D.Cummings in the centre of the debate.

In the data space and earlier on Monday, the German IFO survey came in on the positive side showing that Business Climate and Business Expectations improved to 79.5 and 80.1, respectively, in March. On the other side, of the Channel there are no scheduled releases due to the Bank Holiday.

What to look for around GBP

The British Pound is the worst performing G10 currency so far this month. Indeed, the quid appears to have met quite a significant barrier above the 1.2600 mark vs. the greenback (200-day SMA) and the 0.8660 area vs. the euro (April lows). Moving forward, the sterling is expected to remain under pressure against the backdrop of rising criticism over the mishandling of the coronavirus crisis by the UK government and the potential re-opening of the economy, all amidst the forecasted deep recession the country is expected to face in the first half of the year. Further weakness also stems from the probability that the UK would not ask for an extension of the transition period, opening the door to hard UK-EU trade negotiations. In addition, the sterling risks extra downside pressure on the tangible probability that the BoE could pump in extra stimulus in the next months, even the implementation of negative rates.

EUR/GBP key levels

The cross is losing 0.16% at 0.8941 and a breach of 0.8868 (55-day SMA) would expose 0.8704 (200-day SMA) and then 0.8670 (monthly low Apr.30). On the other hand, the initial hurdle aligns at 0.9000 (monthly high May 21) followed by 0.9019 (monthly high Oct.20 2019) and finally 0.9324 (2019 high Aug.12).