EUR/GBP meets support near the 55-day SMA around 0.9030

The British Pound is giving away part of yesterday’s strong advance and is allowing EUR/GBP to attempt a bounce off recent lows in the 0.9030 area.

EUR/GBP looks to Brexit jitters

The Sterling garnered unusual traction on Thursday following auspicious comments from German Chancellor A.Merkel at her meeting with UK PM B.Johnson. Merkel said that a solution to the critical Irish backstop could turn up before the October 31 deadline, although she stressed that such a solution is entirely up to the UK.

Later in Paris, French President E.Macron said the UK vote to divorce from the EU must be respected, adding at the same time that the backstop is ‘indispensable’.

GBP rallied on such a boost of optimism, although it is seeing some logical profit taking so far today, allowing the European cross to regain part of the ground lost recently.

Nothing expected data wise on both sides of the Channel, whereas all the attention will be on the Jackson Hole Symposium and the speech by Chief J.Powell.

What to look for around GBP

The Sterling reacted (very) positively to Merkel’s hope of a solution to the Irish backstop before the end of October, although such an outcome hinges utterly on the UK… and not on hopes of any EU official. It is worth recalling that PM Johnson deems the backstop as ‘anti-democratic’ and he has repeated many times that it needs to be removed from the Withdrawal Deal to allow for the continuation of the negotiations between both parties. On another direction, the BoE kept the monetary conditions unchanged at its last meeting, although it refuses to factor in a ‘no deal’ scenario in its projections for the time being. The BoE still sees a ‘soft Brexit’ outcome and reiterated that rates are seen increasing gradually in order to bring inflation to the bank’s target.

EUR/GBP key levels

The cross is gaining 0.14% at 0.9054 and faces the next up barrier at 0.9161 (21-day SMA) followed by 0.9183 (high Aug.20) and finally 0.9324 (2019 high Aug.12). On the flip side, a drop below 0.9028 (low Aug.22) would expose 0.8891 (monthly low Jul.25) and then 0.8882 (100-day SMA).