EUR/GBP on the approach to the key 0.8620 support area on Brexit sentiment

• EUR/GBP prices action determined by Brexit sentiment and prospects of Article 50 extension.
• EUR/GBP is carving out a bearish while below the late Jan uptrend support with eyes on 0.8620s key support area.  

While the clock ticks down to the end of the two year negotiating period, there is growing sentiment that the period will be extended to allow for UK Parliament more time to iron out a feasible withdrawal solution to Brexit with the EU.  Prime Minister Theresa May will once again update lawmakers on progress in negotiations this week as the pound picks up a bid on reports of EU chiefs drawing up a plan to delay Brexit until 2021.  

On Wednesday, PM May will give MPs the chance to have their say on how things are going. However, analysts at ING Bank explained that the major focus will be on a proposal that would begin laying the groundwork for a possible extension to the two-year Article 50 negotiating period. “The plan, labelled the Cooper-Letwin amendment, would aim to buy more time to find a deal that can unite Parliament, helping to avoid a potentially damaging exit on WTO terms. the chances of this amendment passing on Wednesday seem to be growing.” Regardless of how this week’s votes in The Commons go, it could still be another few weeks before we know for sure whether Brexit has been successfully delayed and a ‘no deal’ averted.

Forecasting Brexit outcomes is futile

Meanwhile, forecasting Brexit outcomes is futile and we have seen one-month EUR/GBP volatility climbing higher. There are also rumours that banks have cut limits on GBP trading which will likely make the market even more volatile as we head into the eleventh hour.  

EUR/GBP levels

The 0.8620s is a key support area and analysts at Commerzbank retain their negative bias:

“EUR/GBP has recently failed ahead of the 0.8861/62 (55 and 200 day ma) and cloud resistance at 0.8887. Minor support has been eroded to leave the focus on the 0.8620/18 lows.”

“Only failure at 0.8620/18 would suggest an ongoing weakness to the base of the channel at 0.8541 and potentially the 200 week ma at 0.8371. It is on the defensive.”

“The market is expected to struggle on rallies to the200-day ma at 0.8861/62, and only above here allows for a move to the October .8941 high, which is expected to contain the topside.”