EUR/GBP: Bears clutching at Brexit-sentiment straws and look to 0.8620 key support

• EUR/GBP has dropped in despite EUR/USD's strong rally as the pound steals the show, rocketing to a high of 1.3050 vs the greenback, (UK jobs data was solid).
• The greenback is suffering a hangover from the Asian session highs and has fallen below the 97 handle in the DXY with US yields also plummeting. 

Brexit has been on the backburner of late but is coming back to the fore this week as the 27th Feb vote approaches, with important changes of tone, and reports of new plans (and delays of existing plans), suggesting that the risks are building toward a meaningful Brexit breakthrough in the coming days.

• The fall in private business activity may bottom up in February with ECB keeping rates on hold for longer

First of all, the European economy is the laggard and data reported earlier today confirmed that with Eurozone December construction output -0.4% vs -0.1% m/m prior and the Germany February ZEW survey current situation 15.0 vs 20.0 expected. Meanwhile, in the UK employment, unemployment, and wage growth was impressive by historical standards, especially in light of Brexit, and while it took some time to feed through into the price, it is a solid foundation, especially coupled with the recent rebound in retail sales for January.  

Brexit latest:

There have been a number of Brexit related headlines feeding through. We had the Former European Commission president saying most likely scenario is UK will delay Brexit while the European Commission reiterated that they will not accept time limit to the backstop nor reopen withdrawal agreement - which begs the questions as to why UK PM May and Juncker will meet tomorrow? However, a UK PM spokesman, James Slack, said that the meeting tomorrow is 'significant' - (Scheduled to take place at 1730 GMT). 

PM spokesman says here is why:

• The Priminsiter is seeking legally-binding changes to the backstop in meeting with Juncker and that the government is still working on alternative arrangements for backstop while looking to reopen the withdrawal agreement.
• Cabinet has discussed no-deal Brexit planning.

It looks like an Article 50 extension is nearly inevitable and that is where sterling is taking its cues from again. 

 "It looks like May will aim to have a deal agreed by mid-March (especially if the Cooper/Boles amendment, which would extend the Brexit deadline if there is no deal, is put to a vote and passes next week," analysts at TD Securities argued. 

"It's hard to completely rule out Theresa May taking everything down to the wire, with dramatic last-minute negotiations at the 21-22 March EU Leaders Summit, and a vote in Parliament shortly thereafter-- and just days before the UK is scheduled to leave the EU," the analysts explained adding: 

"In this case, she would present the vote as "my deal or crash out", and/or "my deal or a prolonged extension to Article 50", both options that many of her MPs would have difficulty accepting. Remaining vague on the options to the last minute plays to her advantage, because if her deal is rejected, May herself can ultimately decide on Plan B: neither option requires Parliamentary approval. And there is solid evidence out there that she is seriously contemplating both No Deal and a long Article 50 extension."

EUR/GBP levels

Analysts at Commerzbank, on the technical front, had noted that EUR/GBP slowly inched higher last week but failed ahead of the 0.8862/81 (55 and 200-day ma):

"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 0.8365. We have no strong bias. The market is expected to struggle on rallies to the 200-day ma at .8863, and only above here allows for a move to the 55-day ma at 0.8884 and this, together with the October 0.8941 high, are expected to contain the topside."