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  • EUR/GBP has been offered on the back of yet more risk-on headlines, this time coming in the form of Brexit negotiation soundbites.
  • EUR/GBP is currently trading at 0.8903 while the low has been 0.885 on the news, drifting from the highs of 0.8936.

EUR/GBP has been offered from a few pips just below the 0.91 handle and has dropped to 0.8876 this month, (yesterday was the low), as Brexit headlines and outlook turns positive and towards the soft approach by both the EU and UK.  

The latest headline came with, ‘the EU said to begin redrafting Irish Brexit protocol to appease UK’, which sent the pound on a rally from 1.3025 to a high of 1.3074 for the session, (currently back to 1.3065 after dropping back to 1.3052 as the post headline pullback). this followed earlier headlines that Juncker confirmed that they aim for close ties with UK, (cable rallied to 1.3050 in European trade on that noise).

  • EZ data misses and ECB could be more bearish on the economic growth forecasts

Meanwhile, the Eurozone IP disappointed for the sixth time of its seven releases this year –  (IP fell 0.8% mm in July vs the -0.5% mm f/c but more importantly, IP on a yy basis also dropped 0.1%, first drop since Jan 17). BBG news suggested that the ECB will lower EZ growth outlook tomorrow which will be a key event and may put a spanner in the works for EUR/USD bulls that are currently targeting the key daily cloud top up at 1.1681 – (bulls stumbled at the base, 1.1650)  – while the 21-D SMA is lending support at 1.1572).

On Brexit, analysts at TD Securities explained that their base case calls for a 75% chance of a successful Brexit Withdrawal Agreement (including a transition phase):

“We think that the lead negotiators will almost certainly reach an agreement by December this year, with a yet-scheduled 13 November EU leaders summit the most likely date for EU leaders’ sign-off. What matters more in the coming months are UK political dynamics, as a passage of the Withdrawal Agreement and trade statement through the UK Parliament is far from guaranteed. The note summarises our base-case view for Brexit negotiations and describes the political procedures required to approve the Withdrawal Agreement. It then outlines two key ways that a no-deal Brexit might occur, and explores political shocks and risks going forward that could severely impact the negotiations.”

EUR/GBP levels

Analysts at Commerzbank noted that EUR/GBP’s sell-off has almost reached the 0.8855 2nd August low and 5-month uptrend:

“In this vicinity, we find the 0.8860 50% retracement and the 200-day ma at 0.8834 and while there is scope for these to be tested, we look for them to hold and provoke recovery. Note that the 0.8855 55 week ma is also found here. Where are we wrong? Above .9101, the recent high would target .9161 Fibonacci resistance and above here would introduce scope to the .9295 2009-2018 downtrend line.”

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