EUR/GBP: bulls take back the baton, taking out the 200-hr SMA

EUR/GBP has been somewhat consolidative at the start of the week, confined by recent support and resistance levels after dropping from 0.8920s at the end of last week's business. The cross received an initial lift on Monday in European markets after positive Italian-budget headlines, and the pair rallied from 0.8850s to a high of 0.8868. However, bears faded the bid on a deteriorating economic picture for the EZ with further data missing expectations and the pair fell to a low of 0.8836. However, there has been a North American bid from there to a current high of 0.8851.  

EUR/GBP fundamentals in play

Ahead of EZ CPI on Friday, a larger than expected fall in German Ifo business climate index, coming in at 102.00 for November, as compared to 102.8 previous and consensus estimates pointing to a reading of 102.3, has pressured the euro. Casting minds back, the German manufacturing PMI was decelerating to a 32-month low of 51.6 in November, while services fell to a 6-month low of 53.3. (The composite PMI fell to a 47-month low of 52.2 in November - The Eurozone manufacturing PMI decelerated to a 30-month low of 51.5 in November, while services fell to a 25-month low of 53.1. The composite PMI fell to a 47-month low of 52.4 in November). 

• ECB’s Draghi: Headline inflation expected to decline in line with oil price fall

Draghi has also been crossing the wires, warning that world trade growth momentum has slowed 'considerably' and noting that recent economic data have been weaker than expected.  Meanwhile, on the political front, a supportive factor for the euro at the start of this week had been on reports that Italy's government was looking to discuss a lower 2019 budget deficit target to 2-2.1% of GDP, far below the 2.4% and something much more palatable and in line with EU rules. On the Brexitfront, PM May's has the EU's approval on both the political declaration and the conditions for a trade deal on leaving the EU, but she now will face her biggest challenge trying to get the UK Parliament to approve the deal.

• Getting the deal through the UK parliament looks very challenging - Rabobank

EUR/GBP levels

Analysts at Commerzbank explained that EUR/GBP last week faltered just ahead of tough resistance at the October high at 0.8941 and noted that market has sold off to the 55 and 200-day ma at 0.8833/36:

"While it holds over 0.8800, the market will remain capable of retesting the topside. Above .8941 will put the July peak at 0.8960 back in the frame, followed by the early August and September highs at 0.9031/54. However, given that we are currently pretty much mid range – we have no strong bias. Slips should find support between the July low at 0.8799 and the November 12 high at 0.8774. Further support sits at the October trough at 0.8723."