EUR/GBP bounces off multi-month low ahead of the key day

• EUR/GBP holds on to recovery gains amid Brexit positive headlines.
• UK Retail Sales, EU Summit will be the key drivers.

With the no-deal Brexit being mostly off the table, for now, EUR/GBP recovers from early-May lows while taking the bids to 0.8642 ahead of the Europe market opens on Thursday.

Not only the European Parliament’s first Vice President Mairead McGuinness but leaders from Germany and France also seem to have a positive outlook towards the United Kingdom’s (UK) latest Brexit proposal. However, no immediate deal is likely to be availed due to the two-day long EU summit starting from today.

Policymakers at the European Central Bank (ECB) and the Bank of England (BOE) sound a bit optimistic and help respective currencies. Though, the Euro (EUR) gains additional advantage from the US Dollar’s (USD) declines on the back of US-China trade tussle and rising odds of another rate cut from the Federal Reserve.

While the UK Retail Sales for September could challenge pair buyers initially, as forecasts suggest an increase in growth, positive Brexit news from the EU summit will provide the support to the quote’s further run-up.

“We look for retail sales to post a -0.2% m/m decline in September (mkt -0.1%). While the heat wave in the second half of the month should support sales, some other survey measures showed extremely weak retail outcomes, and all three PMIs were below 50. So we think that we’re more likely to see a negative print for sales,” says TD Secuties. The bank also anticipates Brexit to be in the spotlight while saying, “Brexit negotiations will continue this morning, with the best case scenario now looking like a deal, if done, will be discussed by EU leaders on Friday ahead of a vote in Parliament on Saturday. Full approval in the next few days is ambitious, and while not impossible, remains unlikely in our view. This means that the Benn Act comes into play this weekend, with PM Johnson mandated to write a letter to the EU, requesting an Article 50 extension, with the hopes a deal can still be done next week.”

Technical Analysis

61.8% Fibonacci retracement of March-August upside, at 0.8800 becomes the key upside resistance for the pair as it holds the gate for fresh recovery towards 21-day Simple Moving Average (SMA), near 0.8845 now. Meanwhile, May month low surrounding 0.8490, followed by 0.8470, could entertain sellers during further declines.