EUR/GBP edges higher but keeps 0.8600 level in its sights

EUR/GBP is still trading a touch higher on the day, but has pulled most of the back to the 0.8600 level from its earlier rally which took the pair briefly above the 0.8650 handle. Fundamental catalysts for the pair have been on the light side this Friday, with focus in markets elsewhere (i.e. on the reaction of the bond and stock markets to NFP and in wake of Thursday’s remarks from Fed Chair Jerome Powell as well as on the oil market reaction to OPEC+).

Friday’s price action, however, does seem to suggest that EUR/GBP is set to retain its downwards bias that has been the story of the week thus far and another go at breaking below the 0.8600 level either on Friday or sometime early next week seems likely. A break below the 0.8600 handle would, technically speaking, open the door to an extension of downside towards the late-February low at 0.8540.

EU/UK News Update

As noted, not much by way of game-changing fundamental developments acting on EUR/GBP on Friday but there are a few pieces of news and data worth mentioning. Firstly, the EU/UK spat over arrangements in Northern Ireland escalated on Thursday and the EU is preparing to take the UK to court over its unilateral actions (the UK basically extended a waiver to allow business trading between Northern Ireland and Great Britain more time to adjust to the new cross-Irish sea trading rules). The European Parliament has halted its ratification of the UK/EU free trade deal that came into force at the start of the year until this issue can be resolved. Though sterling isn’t really showing it, there is still a very slim risk of a no-deal exit if the EU/UK trade deal fails to pass into law in Europe.

Elsewhere, the UK is seeing more vindication for its (at the time perceived as risky) strategy to delay the second Covid-19 dose in order to get more first doses to its citizens; according to the Lancet, there is evidence that a longer interval between AstraZeneca Covid-19 vaccine doses results in higher vaccine efficacy, although further studies will be needed to see if this is still the case versus other Covid-19 variants. Meanwhile, Italy is reportedly pushing to extend the use of the AstraZeneca Covid-19 vaccine to people over the age of 65.

In further separate pandemic news, the German Robert Koch Institute issued a warning about the spread of more transmissible Covid-19 variants in the country, a reminder that the pandemic appears to be moving in the wrong direction on the mainland. In the UK, the rate at which the prevalence of the virus is shrinking appears to have stabilised according to the latest government estimates of the R rate, with this week’s R rate estimated at between 0.7-0.9 (slightly higher than last week’s 0.6-0.9).

Finally, in terms of data; strong German Industrial Orders for the month of January started the European session off on a strong footing, with orders up 1.4% on the month, more than the 0.7% MoM growth rate expected. Meanwhile, the latest trade numbers out of France show the country’s trade deficit grew a little to EUR 3.95B in January, up from EUR 3.39B in December. Across the channel, house prices took a modest knock February, falling 0.1% according to the Halifax House Price Index.