EUR/GBP drops on Brexit headlines to take out sell stops and rallies back to flat

• Brexit noise at the start of the week propping up the pound.
• EUR/GBP back to test the 0.8953 low from the 12th and 8th July low.

EUR/GBP has fallen at the start of the week with an opening offer in the cross as a result of a spike in sterling following positive Brexit related weekend headlines. EUR/GBP travelled between 0.8955 and 0.8973 with stops taken out on the opening gap around 0.8965 resulting in a flurry to prior 12th July swing lows. 

The following news triggered the event yet the price has moved back towards opening levels, albeit trading with a bearish bias. However, as analysts at ANZ Bank argued, "while the market’s fears of a ‘hard’ Brexit were allayed to some extent last week, the Brexit deadline fast approaches and there remains plenty to agree upon." 

EUR/GBP spent a large part of last week trading above the psychologically important 0.90 level. This is an area that analysts at Rabobank explained as being totally out of scope in the pre-financial crisis years and since then it has broken only on a dozen or so occasions:

"In late 2009 EUR/GBP held above the 0.90 level for more than a month before selling pressure emerged. That said, most breaks have lasted for far shorter periods. Although the UK economic backdrop is souring, GBP’s current vulnerability is mostly a function of political uncertainty."

The analysts explained that these are grave enough to imply that EUR/GBP could leave the 0.90 level way behind in the coming months.

"Whether or not that happens largely depends on whether the next UK Prime Minister has any success in avoiding a no-deal Brexit either on the October 31 deadline or beyond. The effect of Brexit uncertainty on the economy and the legacy impact on the UK’s political system are also considerations for GBP going forward."

EUR/GBP levels

Analysts at Commerzbank explained that nearby support is the 0.8953 low from the 8 th July low. "Failure here will trigger losses to the .8911/23.6% retracement and then 0.8826/38.2% retracement. The market stays bid while above the 200-day ma at 0.8791."