- EUR/GBP: minor correction in place.
- EUR/GBP: Brexit at the forefront, an anchor on the pound.
EUR/GBP is in a minor recovery at the start of the week in quieter markets given the US and Chinese holidays. There has not been much to go on in terms of a catalyst, instead, ears are left to the ground for any political sound bites from various meetings happening in Europe and eyes are looking ahead to PMI's later in the week. Currently, EUR/GBP is trading at 0.8858, up 0.05% on the day, having posted a daily high at 0.8872 and low at 0.8846.
We are waiting to hear the decision as to who the next ECB Vice President will be, Austria's finance minister was out on the wires suggesting that a decision would be made today. Also, PM May was speaking to the Germans at the end of last week and over the weekend.
Brexit, Brexit and Brexit...
Friday's meeting between May and Merkel at Berlin's Chancellery came ahead of a speech on Saturday in which Mrs May set out the "security partnership" she envisages with European partners at the annual Munich Security Conference.
Brexit is likely to keep the pound anchored while the UK and the EU attempt to agree on details of the temporary "transition" period that will come immediately after Brexit day. Just after the latest round of talks, EU chief negotiator Michel Barnier said "substantial" disagreements remained and he had "some problems understanding the UK's position".
Elsewhere, BoE governor Carney is making a speech at 18.45 GMT today at Regents University under the title, "Leadership and Values". Markets will be listening out for the Q&As for anything related to monetary policy, especially after the latest hawkish guidance we have been given from the Boe and MPC members of late.
GBP longs in retreat
In respect to market positioning, analysts at Rabobank explained that net GBP longs almost halved and retreated to their lowest level since last December: "Although BoE rate hike speculation has increased, the market is re-evaluating the assumption made at the end of last year that the agreement between the EU/UK on Brexit legacy issues will set the tone for a smooth set of trade talks. Political uncertainty related to the Brexit transition period could keep a lid on the pound going forward as could confusion caused by the deep divide within PM May’s government," the analysts added.
EUR/GBP levels
EUR/GBP last week reversed just ahead of the 0.8926 mid-January high and the 0.8957 top of the channel, as noted by analysts at Commerzbank:
"Initial support lies circa 0.8800. Key nearby support is offered by the December and January lows at 0.8689/87. While these hold we remain unable to rule out recovery to the 0.9034 October 2017 high. This remains the barrier to the 0.9071/0.9175 61.8% and 78.6% Fibonacci retracements".
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