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19 Mar 2018

EUR/GBP: profit taking in play, 0.8740 needs to break for a ten-day continuation

  • EUR/GBP: the bears are in control, but can they break 0.8740?
  • EUR/GBP: Brexit noise driving the nine-slide still, where next?

EUR/GBP has dropped to a key support line, extending the downside below the rising support established back in late Jan earlier this year. Currently, EUR/GBP is trading at 0.8785, down -0.32% on the day, having posted a daily high at 0.8819 and low at 0.8745.

EUR/GBP has fallen further on the back of the positive Brexit vibes ahead of this week's BoE and EU summit that overlap on the calendar, making for a very compelling week for sterling traders. We are at the lowest levels since 7th Feb, with the bears extending a move that commenced back on the 6th March in nine consecutive days of lower lows. For the downside to continue, the price must get below this current support, or it is highly likely that there will be a bout of profit-taking back onto the 0.88 handle, especially as we draw closer to the BoE decision and EU Summit. 

Brexit noise explained:

"After months of bumpy discussions, negotiators have reached an agreement on a post-Brexit transition period. But will it be long enough for businesses to adjust, and what happens next?" analysts at ING

For a detailed description of the noise, see here: Brexit negotiations and recent agreements fueling a bid in the pound explained - ING

What comes next, BoE in focus?

Analysts at ING Bank explained that now that a transition has been agreed, the immediate focus will turn to finding a practical solution to avoiding a hard border with Ireland:

"Neither of the potential options put forward by Theresa May earlier this month (new technology or a ‘customs partnership’) appear to have alleviated concerns in Brussels and Dublin.

Away from the negotiations, markets will also be paying close attention to the Bank of England when it meets this Thursday. In principle, the agreement on the transition period bolsters the Bank’s assumption that the adjustment to the post-Brexit world will be “smooth”. That, combined with the stronger momentum we’ve seen in wage growth over recent months, makes it all the more likely that policymakers will hike rates in May. We may see the Bank make subtle hints at this in its statement this week, perhaps by echoing some of its language from December that the latest progress is “likely to support household and corporate confidence”."

EUR/GBP levels

EUR/GBP formed a minor top at 0.8969 before slipping through the three month uptrend line at 0.8824 and below the 50-D SMA at 0.8841. This is where the ascending trend line support was and with the price below there, eyes now turn to 0.8740 that guards a run down to the December and January lows are located at 0.8689/87. "Slightly longer term, we remain unable to rule out a recovery to the 0.9034 October 2017 high, provided that support at 0.8687 holds," analysts at Commerzbank argued. 

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