- EUR/GBP fell off a cliff on Friday and continues lower and has done so again on Monday.
- EUR/GBP is weighed by Brexit sentiment as traders step to the side in what is expected to be a volatile ride in either direction.
- EUR/GBP is currently trading at 0.8874, down from a high of 0.8953.
EUR/GBP fell from 0.9062 on Friday on news that Brexit could be delayed and today, 1) there are doubts that it will even go ahead if there is n support for May's deal and 2) there is the conflicting sentiment that PM May could be supported by the ERG as seen voting with May tomorrow, according to ITV - Which has created a flurry into sterling.
PM May's speech
On the day before the House of Commons vote, addressing workers at a factory in Stoke, where 69.4% of voters backed Leave, PM May delivered a 'constructive' speech where EU chief Brexit negotiator Michel Barnier said the prime minister had shown "a willingness to move forward". Labour leader Jeremy Corbyn said the speech suggested the PM had faced up to the reality "that Britain needs a transition to provide stability for businesses and workers". But former UKIP leader Nigel Farage said: "Theresa May's vision is that we leave the European Union but we do it in name only."In her speech, PM May probed the opinion that should tomorrow's vote fail, there will be paralysis in parliamentary proceedings followed by no Brexit at all, and that sentiment is supporting the pound at this juncture.
A second referendum would be the most positive for the pound
A second referendum would be the most positive outcome for the pound which is seen as the most undervalued G10 currency vs the greenback at the moment, with EUR/GBP likely to move below 0.85 as the perceived probability of remaining in the EU would rise.
"While GBP could rally further if a delay to Brexit is announced later this week, the extent of any rally would depend on the length of the delay and then on how this period is then utilised by the government," analysts at Rabobank explained, adding, "The uncertainty about the later suggests that the months ahead are likely to be volatile, but if the UK government and parliament do demonstrate this week that a hard Brexit will not be stomached, EUR/GBP could return to the 0.87 region and cable may return to the 1.30 area."
EUR/GBP bears are embarking on the 50% Fibo retracement of Nov 2018's rise which guards a break below the 200-D SMA at 0.8864. S2 is located at 0.8824. One would expect strong support on these areas, especially on news spikes in the Brexit noise and volatility. However, a prolonged run to the downside, a break of 0.8850 opens 0.8810, just below the 61.8% Fibo of same range.
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