EUR/GBP: Upside met tough resistance at 0.9000

Both the sterling and its ex-European peer are trading on the defensive at the end of the week, leaving EUR/GBP to attempt a consolidative move in the 0.8950 region.

EUR/GBP appears capped around 0.9000

Following fresh 2-month tops in he 0.9000 neighbourhood on Thursday, sellers seem to have returned to the markets and put EUR/GBP under downside pressure to the current mid-0.8900s.

Other than USD-strength, the British pound is also suffering from poor results in the domestic docket, where headline Retail Sales collapsed more than 18% MoM during April, reflecting the impact of the coronavirus on the economy. Core sales also followed suit, contracting 15.2% MoM.

Still in the UK, Public Sector Net Borrowing expanded to £61.4 billion during April, nearly doubling forecasts.

On this side of the Channel, the ECB minutes showed the Council stays ready to increase the PEPP programme if needed, while it has nearly ruled out a case of a swift V-shaped recovery in the region.

What to look for around GBP

The British Pound is the worst performing G10 currency so far this month. Indeed, the quid appears to have met quite a significant barrier above the 1.2600 mark vs. the greenback (200-day SMA) and the 0.8660 area vs. the euro (April lows). Moving forward, the sterling is expected to remain under pressure against the backdrop of rising scepticism over the handling of the coronavirus crisis by the UK government and the potential re-opening of the economy, all amidst the forecasted deep recession the country is expected to face in the first half of the year. Further weakness also stems from the probability that the UK would not ask for an extension of the transition period, opening the door to hard UK-EU trade negotiations. In addition, the sterling risks extra downside pressure on the tangible probability that the BoE could pump in extra stimulus in the next months, even the implementation of negative rates.

EUR/GBP key levels

The cross is losing 0.02% at 0.8955 and a breach of 0.8864 (55-day SMA) would expose 0.8705 (200-day SMA) and then 0.8670 (monthly low Apr.30). On the other hand, the initial hurdle aligns at 0.9000 (monthly high May 21) followed by 0.9019 (monthly high Oct.20 2019) and finally 0.9324 (2019 high Aug.12).