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EURGBP rallied to just shy of its 200-day SMA. Better risk sentiment today has led to some selling toward the 0.85 round number. The 200-day SMA resistance as well as the upper trend line of the descending channel has been a key line in the sand which has seen rallies stumble. Why has EURGBP been strong these past two weeks? Combination of euro carry trades unwinding and risk sentiment souring due to omicron, the pound is sensitive to general risk sentiment so suffers when risk aversion kicks in. To add to weakness on Friday, December rate hike expectations were revised lower when the BoE’s leading inflation hawk stated there could be advantages to waiting for more data on how the omicron variant will impact the U.K. economy before raising rates. The evolution of omicron news flow will be pivotal for this cross. If EURGBP pushes higher above the 200-day SMA it could move towards 0.86-0.865 as stops are triggered placed above the 200-day SMA. If omicron turns out to be less important than feared, EURGBP could move lower towards 0.84. Ben Broadbent’s neutral speech today didn’t drop any hints on what the BoE may do at their December meeting.
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