EUR/GBP: rallied to descending resistance, but not far enough

EUR/GBP rallied up to the descending resistance at the start of this week, a move that got underway in London with a slide in cable dropping a cent or so to lose the 1.40 handle again. Currently, EUR/GBP is trading at 0.8818, up 0.18% on the day, having posted a daily high at 0.8823 and low at 0.8770.

The DXY entered the US session +0.36% while cable rose to a 10-day high of 1.4070 during the European AM on the back of a hawkish steer from BoE's Ramsden in Sunday Times, switching from dove to hawk where he now sees a case to raise rates sooner than he thought, voting against the hike in November's meeting. 

With the probability of BoE rate hike in May, the pound was finding demand. However, May's spokesman came out and said that Britain will not seek a post-Brexit customs union with EU, leaning bearish on the pound. In other politics, Merkel's conservatives backed a deal with SPD today.

ECB's Draghi:

Elsewhere, ECB president Mario Draghi is speaking at the ECON Hearing of the European Parliament in Brussels, Belgium.

There will be a Q&A session as well, but so far, the key comments came as follows:

ECB's Draghi:  The euro area economy is expanding robustly.
ECB's Draghi: Growth is stronger than previously expected.
ECB's Draghi: Inflation has yet to show more convincing signs of a sustained upward adjustment.
ECB's Draghi: Inflation path still conditional on ECB stimulus.
ECB's Draghi:  We anticipate that headline inflation will resume its gradual upward adjustment.
ECB's Draghi: GC hasn’t discussed possible extensions to QE.
ECB's Draghi: Policy effect is produced by a ‘combination of measures’.
ECB's Draghi: Case for tackling NPLs in determined manner ‘is clear’.
ECB's Draghi: Welcomes EC’s proposal on NPLs.

EUR/GBP levels

While the minor correction has taken the cross back onto the 0.88 handle, it still has some way to go and this could be down to a bout of profit-taking before a further leg lower based on the divergences between the two Central Banks. In the meantime, 0.8770 stays in focus on the price below 0.8850.

A break of 0.8770 could open a run towards the December and January lows at 0.8689/87. To the upside, a break of 0.8850/80 opens risk back towards 0.8920. The top of a shallow channel at 0.8962 through 0.8936, the January high. The 0.9034 October 2017 high ahead of 0.9071/0.9175 61.8% and 78.6% Fibonacci retracements come next.