EUR/GBP takes on fresh 6-month lows to 0.8521 on Brexit optimism

• EUR/GBP slides to a 6-month low as UK election polls point to a Tory victory.
• EUR/GBP bears are in control and target a 38.2% Fibo retracement  around 0.84 the figure.  

EUR/GBP is currently -0.21%, trading at 0.8545 having travelled between 0.8521 and 0.8560. The cross is predominately on the backfoot, down some 8.5% since its  mid-summer peak in the 0.93 handle as Sterling picks up a Brexit-themed related bid with cable rallying close to 9% since the start of September.  

The build-up to Brexit has seen a shift in sentiment  whereby UK’s PM, Boris Johnson, has managed to instil some confidence  back into the negotiations  between the UK and EU. However, despite that, the UK is on its way to the polls next month because of disagreements in the House of Commons about Brexit.  GBP has managed to gain some traction despite such  uncertainties  in more recent day’s  though with  the  major pollsters suggesting that the Tory party may have enough support to form a majority government and considering  Johnson’s Withdrawal Agreement.

The market appears to be betting that the chances of a no-deal  Brexit  are small and  cable has gained ground from the 1.2870s to a high of 1.2985 while EUR/GBP has penetrated back below the 0.86 handle and marked a fresh 6-month low of 0.8521.  Indeed, “GBP will continue to  react positively to any news that suggests the PM Johnson’s hand is set to be strengthened,” according to analysts at Rabobank.  

Market positioning data

Looking to the latest  CFTC Commitment of Traders Report, the net short GBP positions have dropped back for a ninth consecutive week. In fact, the shorts are at their lowest level since May given that  PM Johnson seems to have the necessary numbers in parliament to pass his  Brexit  deal after the December 12 election.  Meanwhile, net EUR short positions have also crept lower, but marginally so and without the same velocity as GBP shorts have been trimmed. “Focus is turning to the Lagarde era at the ECB. Although the new President will have to bridge a rift between differing factions in the governing council, the market is still priced for further easing next year,” analysts at Rabobank  argued.

Week ahead

Looking ahead  for the week, on a light data calendar where we will only see November PMIs for German Manufacturing PMI and French Services PMI on the 22nd, instead, investors will look to two other key events.  

On the 19th November, there will be a Johnson vs Corbyn TV Debate  and will be  broadcast by ITV  at 20:00  as the UK leaders go head-to-head as the first of many debates to come in the election campaign. We may see some volatility in GBP during the Asian session where there is typically less liquidity. Then, on the 22nd November, we will have the European Central Bank President Lagarde, who is in favour of fiscal stimulus, delivering a keynote address at the European BankingCongress in Frankfurt. This could give the markets  some insight into a personal bias for policy in preparation for her first ECB meeting on 12 December.  

EUR/GBP levels

With the price of EUR/GBP capped by the 21-4hr moving average, bears are in control, targetting a 38.2% retracement of the July 2015 and YTD range around  0.84 the figure. Bulls will need to regain the 0.88 handle, just above the 200-day moving average.