EUR/GBP: Downside capped as UK government losing motion, hard Brexit still on the cards

EUR/GBP was better bid after the pound dropped around 1.5c vs the buck yesterday, for no apparent reason as the dollar marched on within its uptrend, with the DXY reaching as a high as 97.29. The Brexit fatigue is weighing in investor sentiment and the business climate in the UK which is leaving the pound on thin ice as the clock ticks down towards the Brexit deadline,  scheduled for March 29 exit date.

Prime Minister Theresa May begged MPs on Tuesday to 'hold their nerve' and give her more time to secure a Brexit deal. But the question is whether she will be able to maintain political support and win concessions from the EU? We’ll see at the next vote, scheduled for 27 February.  In the meantime, UK Parliament is in session at the time of writing and a series of amendments tabled and voted upon.

One of the key amendments was Blackford amendment that seeks to extend Article 50 by three months. This was rejected by votes and came of no great surprise. Another key vote that went against the government has been won by UK lawmakers 303 to 258 which was a  government motion to reaffirm support for PM May's plan which was:

"That this house welcomes the prime minister’s statement of 12 February 2019; reiterates its support for the approach to leaving the EU expressed by this house on 29 January 2019 and notes that discussions between the UK and the EU on the Northern Ireland backstop are ongoing."

No deal Brexit still on the cards

This was a motion that effectively asked for more time to renegotiate with the EU. However,  the problem PM May now faces in losing this Commons majority means that EU leaders may feel even less inclined to offer her Brexit concessions than they already were.  It has dented sterling, capping EUR/GBP's downside. 

EUR/GBP levels

Analysts at Commerzbank explained that EUR/GBP continues to consolidate around the 38.2% retracement at 0.8810:

"Currently the market remains in upside corrective mode and we are unable to rule out gains to 0.8840/90 where we look for signs of failure. We have minor support at 0.8723 and this guards the 0.8620/18 lows. Only failure at .8620/18 would suggest ongoing weakness to the base of the channel at 0.8545 and potentially the 200-week ma at 0.8357. The market stays directly offered below the 200-day ma at 0.8863, and only above here allows for a move to the 55-day ma at 0.8889 and this, together with the October 0.8941 high, are expected to contain the topside."