EUR/GBP remains on the defensive near 0.8420 ahead of BoE, Brexit

• EUR/GBP comes under pressure around 0.8420.
• The cross rebounds from YTD lows at 0.8385 (Friday).
• Focus stays on Brexit deadline on January 31^st.

The improved tone in the quid is putting EUR/GBP under extra downside pressure at the beginning of the week in the 0.8420 region.

EUR/GBP now looks to BoE, Brexit

After recording fresh 2020 lows in the 0.8385/80 band on Friday, the European cross met some important resistance at Monday’s tops in the mid-0.8400s, always on the back of the recovery in the sterling and the steady trade in the single currency.

Later in the week, all the attention will be on the BoE interest rate decision on Thursday amidst divided opinions on the likeliness of a rate cut. Indeed, while some investors favour a rate cut against the backdrop of sluggish economic growth and Brexit uncertainty, others expect the ‘Old Lady’ to remain on the sidelines in response to recent better-than-expected data releases.

Apart from the BoE event, the Brexit deadline is on Friday 31^st January. Following this date, frictions between the UK and the EU are predicted to return to the markets as a driving force of the sentiment around the British pound, always against the backdrop of the start of difficult trade negotiations between both parties.

EUR/GBP key levels

The cross is losing 0.09% at 0.8423 and a breakdown of 0.8385 (2020 low Jan.24) would expose 0.8275 (2019 low Dec.13) and then 0.8248 (monthly low July 2016). On the other hand, the next up barrier lines up at 0.8508 (55-day SMA) seconded by 0.8595 (2020 high Jan.14) and finally 0.8628 (100-day SMA).