Talking Points

- Brexit negotiations and the recent German election results are the main fundamental drivers behind the pair.

- EUR/GBP chart looks congested at the current levels and various levels need to be taken out before the next move.

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The euro has weakened against the British Pound by the best part of 6% in the last month – from 0.9306 to 0.8775 – on a bout of renewed confidence in GBP and increased expectations that the ECB will have to keep buying bonds well into 2018, despite all the talk of a ‘quantitative tightening’ timetable. And looking ahead, the recent German elections have cast a cloud over the single currency as traders wait to see the make-up of German Chancellor Angela Merkel’s coalition. The main opposition party, the Social Democrat SPD said that it would not renew its grand coalition with Merkel’s CDU party, leaving a potentially tricky three-party tie-up between the CDU, the FDP party and the Greens.

And on the right-hand side of the pair, GBP has found support lately as the ongoing Brexit talks have not thrown up any bad news of late, although progress is still painfully slow. Last week UK PM Theresa May outlined that the UK would like, and would pay for, a two-year transition period after March 2019, to make sure businesses could ready themselves for when the UK left the EU. While the EU still believe ‘sufficient progress’ has not been made to allow trade talks to start, the idea the talks are moving forward, albeit at a snail’s pace, has underpinned the recent strength in GBP.

On the daily chart, the pair have entered into a congested area with Fibonacci support levels close by, and have completed a head and shoulders set-up. Ahead, support for the pair starts at the double low in July at 0.8743 before Fibonacci support kicks in at 0.8693 and 0.8548. On the upside Fibonacci resistance starts at 0.8810 and 0.8927.

Chart: EURGBP Daily Timeframe (February - September 27, 2017)

EUR/GBP Pauses Ahead of Potential Move Lower

Chart by IG

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--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

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