EUR/GBP: what will it take to break down to 0.8527 bear target?

  • EUR/GBP: Central Banks is the trade, bearish bias.
  • EUR/GBP: Brexit negotiations also favour the pound.

EUR/GBP has been falling back from the recovery highs to just shy of the 0.88 handle, sliding in late Asia and extending the downside through European markets and late London. Currently, EUR/GBP is trading at 0.8751, down -0.50% on the day, having posted a daily high at 0.8802 and low at 0.8750.

EUR/GBP bears are eyeing the previous day's low of 0.8745 where, although the UK's data overnight where UK CPI slipped to 2.7% in Feb (from 3.0% in Jan and against market expectations for a drop to 2.8%. PPI input and factory gate prices were also below forecasts for the month), dented the pound's advance, focus remains on the divergence between central banks. 

Brexit and Central Bank diversion supporting Sterling's advance over the euro's

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 rate hike in May should be on the cards whereas for the ECB, while there is optimism on the economy, there is a cautiously constructive view on policy risks. Thus, this is supporting the idea that QE steps are likely to be reduced and halted this year until 2019. At the same time, Germany reported softer than expected PPI data for Feb (+1.8% Y/Y, down from +2.1% in Jan) and a softer ZEW survey, anchoring EUR/USD ahead of tomorrow's FOMC announcements. 

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

EUR/GBP dropped below the 0.8850 and the 50-D SMA at 0.8840. This is where the ascending trend line support comes in and with the price below there, eyes now turn to 0.8730 that guards a run down to the December and January lows are located at 0.8689/87. Eyes are on GBP/USD as well,  while the price is consolidating above the descending resistance that comes as a support on dips within the reversal from 1.3711 recent lows, (Feb 28th). The current price action on the near term charts has the pair supported in swing high territory and it will take a break above 1.4020 and 1.4080, the 200-W SMA, to drive the cross over the 0.8690 cliff. "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.

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