“¢ Irish border deadlock weighs heavily on the British Pound on Monday.
“¢ Gains remained capped amid concerns over Italian budget proposals.
The EUR/GBP cross build on its weekly bullish gap further beyond the 0.8800 handle and jumped to over one-week tops in the last hour.
The cross extended last week’s goodish rebound from near four-month lows and remained well-bid for the third consecutive session on Monday. The British Pound’s relative underperformance against its European counterpart could be attributed to the latest negative Brexit headlines.
It is getting unlikely to have a breakthrough in the sticky issue on Irish border at the EU summit this week, which weighed heavily on the British Pound at the start of a new trading week and was seen as one of the key factors behind the pair’s bullish gap.
The cross, however, struggled to build on the positive momentum amid concerns over Italy’s fiscal policies. The Italian cabinet meeting is due on Monday and might confirm the budget deficit target of 2.4% of the gross domestic product, setting up the stage for a possible clash with the European Commission.
This coupled with the latest political development in the Euro-zone’s largest economy might weigh on the shared currency and eventually keep a lid on any runaway rally for the cross. The German Chancellor Angela Merkel’s arch-conservative CSU allies suffered historic losses in Bavaria state elections on Sunday and seem to have rattled her fragile three-party coalition government.
Hence, it would be prudent to wait for a strong follow-through buying before traders start positioning for any further near-term positive momentum amid absent relevant market moving economic releases either from the UK or Euro-zone.
Technical levels to watch
Immediate resistance is pegged near the very important 200-day SMA, around the 0.8835 region, above which the cross is likely to aim towards 0.8875 supply zone en-route the 0.8900 handle. On the flip side, weakness back below the 0.8800 handle now seems to find some support near the 0.8875 horizontal zone ahead of the 0.8850-40 region.
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