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  • A combination of factors weighed on the British pound and led to a bullish gap opening for EUR/GBP.
  • Brexit uncertainties, the imposition of new COVID-19 restrictions in the UK took its toll on the sterling.

The EUR/GBP cross held on to its strong Asian session gains and was last seen trading near the top end of its daily range, around the 0.9135-40 region.

The cross opened with a bullish gap on the first day of a new trading week in reaction to the imposition of tougher COVID-19 restrictions in the UK. British Prime Minister Boris Johnson abruptly imposed the most severe lockdown measures in London and southeast England to control the fast-spreading new variant of the coronavirus.

The British pound was further pressured by a deadlock in the post-Brexit trade deal negotiations. Both sides remain at odds over access to the UK’s rich fishing waters and missed yet another deadline. The European Parliament had fixed Sunday as the last moment it could accept a text of any accord to ratify it before the end of the transition period.

The developments overshadowed the optimism over news that a deal had finally been struck on a long-awaited US stimulus bill and an emergency use approval for Moderna’s COVID-19 vaccine. This, in turn, drove some haven flows towards the US dollar, which exerted some pressure on the EUR/USD pair and might cap any further gains for the EUR/GBP cross.

Nevertheless, the cross has recovered around 150 pips from last week’s swing lows, around the 0.8980 region. In the absence of any major market-moving economic releases, either from the Eurozone or the UK, the incoming Brexit-related headlines, will continue to influence the GBP price dynamics and produce some trading opportunities around the EUR/GBP cross.

Technical levels to watch