EUR/GBP holds on above 0.8900, focus stays on Brexit, UK politics

• EUR/GBP adds to Friday’s gains above the 0.89 mark.
• Halifax HPI came in short of expectations in September.
• A potential delay to the Brexit deadline is now in centre stage.

EUR/GBP is posting decent gains above the 0.89 handle on Monday, managing to extend further the rebound from September’s low in sub-0.8800 levels.

EUR/GBP faces a key week on Brexit process

The European cross keeps the firm note well and sound so far today on the back of some renewed offered bias around the Sterling.

On the Brexit front, France’s E.Macron said the EU could evaluate at the end of the week if a deal is possible and respects the EU principles, all amidst further discussions between both parties and another European tour of Secretary S.Barclay.

In the meantime, volatility around GBP is expected to return this week amidst key data releases and increasing rumours on a probable extension of the Brexit deadline.

In the UK docket, house prices tracked by the Halifax index contracted at a monthly 0.4% during September and rose 1.1% over the last twelve months, both prints coming in below consensus. Later in the week, all the attention will be on the GDP figures as well as Industrial/Manufacturing Production results.

On the euro docket, the Sentix index deteriorated further to -16.8 for the current month, while German Factory Orders contracted 0.6% MoM during August, disappointing expectations once again.

What to look for around GBP

The EU’s response to PM B.Johnson’s proposal for the Irish backstop has been cautious so far, prompting the Sterling to give away part of the recent moderate gains. This week, another potential delay to Article 50 will be on top of the investors’ agenda, adding volatility to the Pound. While the negotiation between both parties is expected to continue in the next days, and on another side, BoE’s (former hawk) M.Sunders stressed the likelihood of a rate cut if the UK economic outlook worsens regardless of the Brexit outcome. His view could keep rallies in GBP somewhat limited for the time being and carries the potential to spark a division in the central bank’s ranks, as the ‘Old Lady’ remains reluctant to factor in a probable ‘hard Brexit’ into its projections.

EUR/GBP key levels

The cross is gaining 0.23% at 0.8917 and faces the initial hurdle at 0.8936 (monthly high Oct.1) seconded by 0.8972 (100-day SMA) and then 0.9004 (38.2% Fibo of the May-August rally). On the flip side, a drop below 0.8829 (200-day SMA) would expose 0.8785 (monthly low Sep.20) and then 0.8667 (78.6% Fibo of the May-August rally).