EUR/GBP: on the way to 0.8840

For euroland, we had better than expected German ZEW Investor Confidence data (-10.6 this month versus -13 expected). However, the data failed to give the EUR any real support as the market drifted lower from a squeeze to the mid 1.16s. At the same time, Italian bonds continued to recover and in comparison to German 10Y bunds, this was prompting a continuation of the narrowing in spreads by around 2bps on the day (to +247bps).

As for the UK data revealed, investors were encouraged by the steady unemployment (4.0%) and a further pick up in wages. Another plus was the weekly earnings and ex-bonus payments that were reaching +2.9% in the Jul year. 

"Consistent with the balance of risks facing the UK, and BoE Governor Carney’s signalling, we expect one further rate hike from the MPC in 2019, which is currently one hike less than the Bloomberg consensus. Today’s data are broadly consistent with the BoE’s outlook for wages, and as such are unlikely to lead to a renewed hawkish shift on the MPC,"

Bill Diviney, senior economist argued. 

Then, the Treasury made an announcement that the BoE Gov. Carney would stay in his position beyond his term in order to help see the economy through the Brexit process. 

EUR/GBP levels

EUR/GBP has been in a downward spiral on recent Brexit headlines since 0.9098 and is on the way down to 0.8840 which will nullify the breakout channel that occurred in late June.  

"Attention has reverted to the downside. It has eroded the 55 day ma and we would allow for a deeper slide to the 0.8855 2nd August low. We have a 5 month uptrend at 0.8852 and the 200 day ma at 0.8833 and there is scope for these to be retested,"

analysts at Commerzbank explained.