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EUR/GBP penetrates deeper below the 200-DMA on fresh soft Brexit optimism

  • EUR/GBP prints lower below the 200-DMA as Brexit optimism picks up.
  • Bears target 61.8% Fibonacci retracement of the May-to-August advance at 0.8794.

EUR/GBP has dropped on the prospects of a soft Brexit and a deal being reached by the 31st October. The European Commission president, Jean Claude Juncker,  when interviewed on Sky News, was optimistic that a deal could be reached.

Sky News reported that Juncker said a no-deal Brexit would be "catastrophic" and he was doing "everything to get a deal" and he said he was prepared to get rid of the so-called backstop from a withdrawal agreement, so long as "the objectives are met - all of them". Mr Junker also confirmed that he has been sent documents by Prime Minister Boris Johnson outlining draft ideas for a new Brexit deal.

Central bank divergence supports Pound

Meanwhile, the Bank of England has unanimously voted to keep rates on hold but, unlike their Federal Reserve and European counterparts, a rate cut is unlikely which is also supporting the bullish case for the Pound. 

"In short, while the Bank still notes that rates may need to rise if Brexit goes smoothly, the risks surrounding Brexit, as well as global growth, mean this tightening is increasingly unlikely to materialise," analysts at ING Bank explained, adding:

"Having said that, the fact that the BoE is maintaining a tightening bias at all, does hint that policymakers are – and will likely remain - reluctant to follow the Federal Reserve and European Central Bank in the direction of policy easing in the near future."

EUR/GBP levels

EUR/GBP reached the 200-day moving average at 0.8838 and analysts at Commerzbank anticipate that the cross will soon give way with the 61.8% Fibonacci retracement of the May-to-August advance at 0.8794 then being in focus.

"Minor resistance above the 0.8891 July low and the 0.9016 September 9 high can be seen between the mid-July high and the 55 day moving average at 0.9047/52. Further resistance comes in at the 0.9149 current September high. Still further up sits the August peak at 0.9327."
 

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