The pair recovers as pound traders focus on the next challenge in Brexit
The pair has been attempting to break lower over the past two sessions but so far has been unable to find a firm break below key support from the 61.8 retracement level @ 0.8693 and the March low @ 0.8668. The pound had been looking optimistic since overnight trading but the tides are starting to shift now as markets are paying more attention to the next challenge in getting a Brexit deal i.e. meaningful vote in UK parliament.
Theresa May has done well to give the pound a boost by agreeing on a Brexit text with the EU and likely getting Cabinet to sign off on that later. However, all that good work will be for naught if parliament shoots down her deal in a couple of weeks’ time.
And that kind of uncertainty is what is failing to allow the pound to rally in a profound fashion despite progress in negotiations. I still expect the pound to pick up some pips later in the day when Cabinet signs off on the deal and when European officials call for a late November summit to finalise the details.
But expect those positive developments to be short-lived as long as there isn’t any real change to the current sentiment whereby Tory Brexiteers, the DUP, and the Labour party look set to vote down May’s Brexit deal.
And with that sentiment lingering, EUR/GBP is looking a lot more like it’s nearing a bottom rather than a continued downtrend right now. The pound’s only hope for a further sustainable rally now is if the meaningful vote manages to pass in parliament. Otherwise, I’m finding it tough to argue for a further break to the downside here.