Senior Analyst at Danske Bank Jens Pedersen noted the relevance of the 0.8700 level in the European cross.
Key Quotes
“GBP remains supported by rising Brexit optimism and EUR/GBP fell close to 0.87 last night. There are a lot of reports in the media that both the EU and the UK officials could soon declare that ‘decisive progress’ has been made in negotiations”.
“Technically, the key support level is seen just below 0.87 in EUR/GBP (0.8698) and a break below this level could open up for additional GBP appreciation near term. However, Theresa May still faces a major hurdle in getting the deal approved by her cabinet and later by parliament”.
“Hence, while the knee-jerk reaction to a Brexit deal announcement is likely to send EUR/GBP lower, we could see the cross quickly rebounding again until a deal has been approved by parliament. Hence, expect GBP to remain very volatile in coming months, and corporates hedging GBP income should consider taking advantage of the recent GBP appreciation to build up hedges for 2019. We recommend hedging via ratioed risk reversals”.
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