EUR/GBP probing multi-month lows above 0.8500 as France heads towards national lockdown

• EUR/GBP is currently probing this week’s multi-month lows around the 0.8510 area.
• French President Macron, speaking at 19:00BST, may toughen restrictions again by implementing a new national lockdown.

EUR/GBP is currently probing this week’s multi-month lows around the 0.8510 area. The pair has dropped a modest 10 pips or about 0.15% from Asia Pacific levels in the 0.8520-30s, a decent reversal back from Tuesday session highs to the north of the 0.8550 mark. A break below support in the form of the psychologically important 0.8500 level would open the door to an extension of technically driven selling amid a lack of any key support levels all the way down to the 0.8300 mark.

Driving the day

The main news of note on Wednesday is that France may be about to toughen lockdown restrictions again by implementing a new national lockdown that could include the closure of schools for four weeks (one week of remote learning and three weeks of holiday). French President Emmanuel Macron will be giving a speech at 19:00BST where he will announce the new measures and the French Parliament will be voting on the lockdown rules on Thursday (and are expected to vote in favour of them).

The news is not particularly surprising given that Covid-19 cases continue to trend higher in France and amid ongoing concerns in various regions that hospitals may become overwhelmed. It is worth noting that France (and the rest of the EU) did not see as big of a spike in Covid-19 infections in Q4 2020 and early Q1 2021 as in the UK because, at the time, the UK was being hit by the much more virulent (as much as 70% as transmissible) B.1.1.7 variant, which was first found in Kent. However, this variant has now become dominant on the mainland and is sadly driving the third wave of infections there.

Eurozone countries face a tough battle in the coming weeks to keep infections down as much as possible, with the hope that vaccine acquired immunity and better weather as the Northern hemisphere enters summer will bring cases down again. The hope is that the death rate of the virus will be lower over the course of this next wave of infections given that the EU has been able to now vaccinate a decent percentage of its over 80-year-old population.

Signs that the EU is getting the virus under control again and beginning to open up will eventually come to aid the euro versus the likes of GBP and USD, two currencies against which the euro has suffered greatly in recent months. But this still seems some week away, meaning euro pairs such as EUR/GBP are likely to struggle to catch a bid in the near-term.