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  • EUR/GBP runs into a roadblock, capped by US session supply.
  • UK budget back in focus as a play-off with the BoE aha of official UK/EUR trade talks next month. 

EUR/GBP has been capped in the up-surge during the New York session, despite improved sentiment in the eurozone’s economic data and has given back a 61.8% Fibonacci retracement on the day so far. At the time of writing, EUR/GBP is trading at 0.8376 having travelled between a low of 0.8355 and a high of 0.8415. 

While the eurozone data made for a sigh of relief, in that consumer confidence was strengthening in February despite the coronavirus scare, in data which is presumed to potentially prevent a contraction in the first quarter’s growth outcome, markets still anticipate a weak eurozone economic performance owing to weakness in exports and business investment. 

Instead, we are seeing continued good news from the UK data, despite the Brexit uncertainties which is where the focus lies for the cross. The UK is bouncing back after the intense fourth quarter’s uncertainty. Retail Sales surprised slightly to the upside at +0.9% MoM in January, unwinding part of the -1.4% cumulative decline in Nov-Dec.

“Overall retail sales are sitting at around the same level that they were in May, so while today’s result is a bit better than expected, the big picture trend in sales is hardly impressive,” analysts at ANZ Bank explained. However, bulls are unlikely to get too heavily invested all the while the short-term sentiment remains dominated by the upcoming trade talks with the EU and the coronavirus. 

The bid from Bank of England vs fiscal stimulus to fall out of GBP?

As for the play-off between the Bank of England and fiscal stimulus, which the pound got a boost from earlier this month following a surprise resignation from the Chancellor, Sajid Javid, subsequently replaced by Rishi Sunak, the UK budget now confirmed to be announced on 11 March. However, analysts at TD Securities anticipate the new Chancellor to hold to existing fiscal rules: (1) balance the current budget (day-to-day spending) by 2023, (2) keep net investment below 3% of GDP, (3) reassess plans if debt interest surpasses 6% of GDP.

“Given the distinct possibility that UK-EU trade talks will fail to progress and an agreement will not be reached by end-2020, appointing Sunak (a Brexiteer, and a strong advocate of divergence) No.10 may be aiming to avoid Treasury resistance to a ‘no deal’ Brexit,”

the analysts argued, which, in turn, could strip the point of some of its appeal, especially should UK data take a turn for the worst or negotiations that are due to formally kick off next month fail to deliver positive headlines in the press. 

EUR/GBP levels