EUR/GBP: On the road to 0.8620 2018 low; but attention for now is on the FOMC minutes

• EUR/GBP is a wild card at these levels, accumulated around the pivot but at the top of the descending channel while caught in between a political melting pot whereby sentiment changes from one day to the next.
• EUR/GBP is currently trading at 0.8771 and has come off the highs at 0.8809 and off the lows of 0.8767.
• Markets now await the outcome of today's FOMC minutes: When are the FOMC minutes and how could they affect DXY?

Fundamentally, Brexit headlines change like the wind and so does the market's reaction to the Italian budget risk updates. The latest of which tells us that the EU is preparing to indeed reject the budget proposals - as widely expected. Considering how long the process of legalities will take between the EU and Rome, well into next year, it is a risk that is more deep-seated than shocking to markets; Hence why such news has been taken in the market's stride. However, it is another spanner in the works for the ECB that will meet next week.

"We expect the ECB to navigate next week's meeting with minimal fanfare, with no change to policy and no clarification on QE and reinvestments. The macroeconomic backdrop has deteriorated slightly since their September meeting, however. This might leave a dovish tone to the press conference in particular," analysts at TD Securities explained.

Brexit: All ears on sound bites from European Council Meeting in Brussels 

Meanwhile, all eyes are on Brexit, and the European Council Meeting in Brussels started today. Brexit negotiations will resume here ahead of a vote that will take place as soon as tomorrow, once PM May has delivered her proposals that will now lie in the hands of all 27 EU members. PM May is looking for an extension to a special Brexit summit by November, but in the unlikely event that EU members vote against that - the UK could well be leaving the EU by April next year without a deal. 

However, there might be some solace in an offer from EU chief negotiator Barnier whereby an extension of the transition period by 21 months is on the table, along with a two-tier backstop. The proposal would allow both the UK and Northern Ireland to remain in the Customs Union in the case of a no-deal - The idea here is to extend the period that would allow more time for an EU–UK trade relationship to be built while avoiding a particular arrangement for Northern Ireland. 

Sterling has the edge 

Besides today's slight set back, (GBP/USD: bulls set back by CPI drifting - Scotiabank), on an extension to a special Brexit summit by November agreed by EU members, and the possibility of a softer outcome for the UK in leaving the EU, the pound can rally across the board. The undertone is that of a strong UK economy, despite the political uncertainties and also, the market is scratching its head, looking around at the moment for an alternative to the US dollar that might be regarded as a haven. The pound could be in the running for such a status in the event of positive outcomes concerning Brexit negotiations, and such an appeal would undoubtedly give EUR/GBP bears a definite edge when considering the divergence between the EZ and UK economy and central banks. 

EUR/GBP levels

EUR/GBP changed its bullish trajectory late August and had paused in its decline at the 76.4% Fibo retracement level where it catches a bid up to the descending resistance line between R1&R2. The latest price action is bearish according to long wick shadow and bearish rejection at the trend line resistance with the price now edging lower below the 21-D SMA on the 4hr sticks. 

Analysts at Commerzbank explained the Fibo rebound is viewed as corrective only and failure here would target the 0.8620 2018 low:

"Near-term rallies will find initial resistance at 0.8835 200 day ma ahead of 0.8916 the 55-day ma and will now stay offered below here. The Elliott wave count is implying that the rebound will falter at 0.8835/65 and the market already looks to be losing steam ahead of here."