EUR/GBP: Bleeding into lower highs and lows as euro sinks and pound pops

EUR/GBP is continuing to bleed following a sell-off from the 0.9060s as markets back sterling, speculating that a hard Brexit will be avoided and a more likely scenario if May can't bridge the gap between Labour and the Conservatives nor achieve concessions from the EU that will appease the Brexiteers, will be a second referendum - sterling positive.  

The opinion is that if there was a second referendum, while this may be bad for the future of UK democracy and politics in general, the most likely income is the public will vote to stay in the EU after all. However, official government guidance says it will take a year to organise a second referendum.

At this juncture, May needs to deliver a deal that can pass parliament or seek an Article 50 extension to avoid a chaotic exit. There have been some whispers that the EU is prepared to look at the contentious issue of the Irish backstop if Dublin approves.  

 The latest headline was from Reuters:

 "The European Union is open to the possibility of an agreement with Britain that goes beyond free trade, EU Brexit negotiator Michel Barnier said on Thursday.

“If they (Britain) tell us they want a more ambitious relationship, we are open,” Barnier told reporters during a visit to Lisbon."

UK searches for Brexit 'plan B'

Official government sources have been saying that we can expect the PM to have calls with EU leaders in coming days and that MPs involved in the Brexit talks were handed a one-page document setting out the timeline today. In the same roll of headlines, we have heard that meetings with lawmakers on finding a way forward on Brexit have been constructive and that there have been opposition labour lawmakers involved in discussions with the government. 

Meanwhile, on the euro leg of the cross, it is taking a beating on concerns over German and eurozone growth. ECB Chief Draghi has warned of a prolonged slowdown in the eurozone and a disorderly Brexit sure isn't going to help matters on mainland Europe either.  Yesterday, EUR/USD bears registered a daily close below the 1.1393 Fibonacci level, a 50 percent retrace of the 1.1216 to 1.1570 (November to January) rise, vs the greenback which has left the euro in the market exposed and vulnerable to further supply. Sellers below 1.1350 on the EZ slowdown narrative could be the nail in the coffin for the euro and lead to further downside in the cross, provided the market stays with the same optimistic sentiment surrounding a soft Brexit. 

EUR/GBP levels

Analysts at Commerzbank noted that EUR/GBP’s rally higher was rejected by the previous uptrend, which is now acting as resistance at 0.9000: "While capped here the market will continue to weigh on the downside. The market has eroded the 200-day moving average and this tips it into more negative territory. We look for losses to 0.8810 the low from the end of November, which we suspect will hold the initial test. Failure at 0.8810 the end of November low would target the 0.8655 November low. We note the 13 count on the 240-minute chart and would tighten stops now."