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EUR/GBP Pressured Lower by Politics, Support Under Scrutiny

EUR/GBP Pressured Lower by Politics, Support Under Scrutiny

Nick Cawley, Strategist

Talking Points

- German political concerns weigh on the single currency.

- Fresh talk in the UK that PM May will offer the EU a higher financial offer.

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EUR/GBP fell further in early European trade on Tuesday with the pair being led lower by political moves in Germany and the UK. And with a four-month low within sight, the pair may have further to fall.

After failing to form a coalition government, German Chancellor Angela Merkel has ruled out leading a minority government and said that she would rather face new elections to help break the political impasse in the country. If new elections are called, they are likely to be in early 2018, leaving the market in limbo during a critical time in the EU/UK Brexit talks.

In the UK, PM Theresa May is expected to try and break the current logjam by offering the EU additional funds towards the Brexit bill when she meets EU Brexit negotiator Michel Barnier on Friday. While the additional sum - £20 billion has been mooted – has been talked about for some days now, heavyweight Brexiteers Boris Johnson and Michael Gove are now said to back the offer, as long as the UK gets more specific details on trade agreements.

This double-whammy of sentiment continues to weigh on EUR/GBP with important support levels on the horizon. A look at the charts shows a six-day losing streak with the 50% Fibonacci retracement level at 0.88100 under threat. Below this a break under the November 1 low of 0.87300 would take the pair back to levels last seen in mid-June and leave the 61.8% Fibonacci retracement level at 0.86928 as the next level of support.

Chart: EURGBP Daily Timeframe (April 7 - November 21, 2017)

EUR/GBP Pressured Lower by Politics, Support Under Scrutiny

Chart by IG

The latest CFTC commitment of traders report shows speculators remain net-long of the EUR, although at slightly less elevated levels than last week. On the other hand, net GBP shorts halved over the week, with traders looking for a more positive outcome from Brexit talks.

EUR/GBP Pressured Lower by Politics, Support Under Scrutiny

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--- Written by Nick Cawley, Analyst

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

Follow Nick on Twitter @nickcawley1

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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