EUR/GBP meeting resistance, eyes on a deeper sell-off to the 50% retracement at 0.8896

EUR/GBP has stabilised in the 0.90s from a firm support and double bottom while the Pound struggles in an environment of Brexit tensions combined with disappointing manufacturing data. EUR/GBP is currently trading at 0.9093, +0.68%,  having travelled between 0.9025 and 0.9108. 

The focus for the start of the week was with Parliament returning from summer recess and expectations of rebel MPs seeking to block a no-deal and a vote of no confidence from the opposition party's leader seeking a snap general election hoping to bring forward legislation blocking a no-deal Brexit later this week.

However, Conservative MPs voting against the government could be given the boot, backfiring on the movement and ramping up chances of a no-deal Brexit. Following a cabinet meeting at Downing Street, PM Johnson made a public statement and made it clear that he will not ask for an extension and that the UK will leave on October 31st with or without a deal. 

"I don't want an election, you don't want an election...let's get Brexit done by October 31st,"

Johnson said.

Prior to the event, the Pound was already on the backfoot. British factory activity hit a seven-year low in August, also contributing to the pound’s fall. The IHS Markit/CIPS U.K. Manufacturing Purchasing Managers’ Index (PMI) fell to 47.4 from 48 in July and business optimism dropped to a record low.

ECB easing to hamper bulls advances

However, bulls are hardly in a strong position considering the state of the eurozone. Attempts to the upside are capped at a familiar resistance band and net EUR short positions increased modestly last week ahead of the European Central Bank meeting scheduled for later this month and prospects of policy easing.

EUR/GBP levels

Analysts at Commerzbank explained that EUR/GBP last week saw a slight erosion of the 55-day ma at 0.9049, but note hat the daily Elliott wave count is continuing to suggest that the correction lower should remain limited:

"It is unclear if the correction is over or not and we remain unable to rule out a deeper sell-off to the 50% retracement at 0.8896 at this stage. In this vicinity we look for stabilisation and recovery. Near term rallies are likely to find initial resistance at 0.9191, the 30th July high. This guards the 0.9327 recent high. Above 0.9327 targets 0.9403, the 2016 high and eventually 0.9803."