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The pound tends to come under pressure when the risk environment turns sour. Given its sensitivity to risk, I’m not surprised by the move higher we saw in EURGBP. Also, UK data was a bit softer last week too. PMI data out yesterday was poor for both the eurozone and UK, however, manufacturing in the UK did beat expectations. Also, some are saying sterling saw strength yesterday on the back of a cheeky bid for Sainsbury’s by a US private equity company. The largest economy in the eurozone, Germany, saw an upgrade to their final estimates for GDP growth figures above expectations this morning. Thursday might bring some interesting moves for EURGBP if ECB minutes from the July meeting out can shed some more light on how the tapering discussion or complete lack of is coming along. I still think over the medium term EURGBP remains a short the rallies candidate on a divergence between the ECB and BoE in terms of policy. How quickly policy normalizes in the UK hinges on the labour market recovery in a post-furlough world.
Technicals wise, price rallied up to the former range support at 0.857 which is now acting as resistance. 0.8669 20 July highs seem a step too far. The RSI has made some negative reverse divergence – price made lower highs and the RSI made higher highs, this usually sees further downside price moves. The RSI also hit resistance at the 60 level which marked the peak for previous price rallies. Price currently is finding some support on the 50-day SMA. Targets for me on the downside would be the 21-day EMA and trend line of the descending channel around 0.852, with further moves towards 0.85 and 0.845 support. On the upside, 0.86 and the former range resistance around 0.864 would be areas of interest.
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