EUR/GBP: slides further and 0.8689/87 is on the radar

EUR/GBP has been falling back from the recovery highs to just shy of the 0.88 handle, sliding in late Asia at the start of this week on Brexit optimism and extending the downside through European markets yesterday. Currently, EUR/GBP is trading at 0.8726, down -0.21% on the day, having posted a daily high at 0.8761 and low at 0.8723.

The 0.8755 double top capped the minor recovery attempts in Asia and the European bears pilled in again. Then came the UK wage data where the pound found additional support. The data was showing a 2.8% gain in average earnings to 2.8% (highest since late 2015) and a nudge lower in the ILO unemployment rate. This comes ahead of the BoE this week where markets will be looking for a hawkish hint towards a rate hike in May where the market has already factored in 19bps of tightening. There is a bid in the pound over the euro on the basis that while there is optimism for the European economy, there is a cautiously constructive view on policy risks. QE steps are likely to be reduced and halted this year until 2019 

Eyes stay on Brexit

The recent agreement on the Brexit transition period likely bolsters the BoE's assumption that the adjustment to the post-Brexit world will be “smooth”, and that a BoE rate hike in May should be on the cards. For a detailed description of the current Brexit noise, see here: Brexit negotiations and recent agreements fueling a bid in the pound explained - ING

EUR/GBP levels

0.8690 is the cliff edge. "A close below here would trigger losses to the 78.6% retracement at 0.8527 (of the move up from the 2017 low)," argued analysts at Commerzbank. The price is building a case for the downside still while trading heavy below the ascending trend line support. 0.8730 has been pierced and this was regarded as a level that guards a run down to the December and January lows are located at 0.8689/87.