- Extra downside in the Sterling leads the up move in the cross.
- EU Tusk will meet UK May in Egypt although a deal is ruled out.
- EMU CPI matched estimates. German IFO came in below consensus.
The selling bias around the British Pound is now picking up pace and is sponsoring the up move in EUR/GBP to tops beyond 0.8700 the figure.
EUR/GBP focused on Brexit and Brexit alone
The renewed uncertainty around Brexit have relegated the recent optimism on a potential deal between the UK and the EU in the next weeks, forcing the Sterling to shed part of its gains and thus lending some wings to the European cross.
Always around Brexit, EU D.Tusk is expected to meet PM T.May in Sharm El-Sheikh at the EU-Arab Summit over the weekend, although EU officials have already ruled out any chances to seal an agreement.
In the data space, German IFO Survey extended the downtrend in February, coming in below expectations in all of its components and at the same time adding to the sour sentiment in the euro region. Further data saw inflation figures in the broader euro area matching the preliminary prints for the month of January.
Later in the day, ECB’s Mario Draghi is due to speak.
What to look for around GBP
The Sterling is expected to remain under increasing pressure as the clock continues to tick and there is no progress on the horizon (or even any hint of it) in the UK-EU divorce negotiations. So far, consensus among market participants seems to lean to an extension of Article 50 or a deal at the very last minute as it appears to be no support for a ‘no deal’ scenario. In the meantime, the Irish backstop stays the critical issue to be resolved and the main obstacle for further progress in negotiations. This, in combination with poor UK fundamentals should be enough to keep occasional rallies in GBP somehow capped.
EUR/GBP key levels
The cross is gaining 0.26% at 0.8710 and a breakout of 0.8741 (21-day SMA) would aim for 0.8840 (high Feb.14) and finally 0.8858 (200-day SMA). On the flip side, the next support aligns at 0.8666 (low Feb.21) seconded by 0.8655 (low Nov.13 2018) and then 0.8616 (2019 low Jan.25).
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