EUR/GBP: focus is on EU politics, bears in control, eyeing key 0.8600 level

Currently, EUR/GBP is trading at 0.8723, down -0.64% on the day, having posted a daily high at 0.8790 and low at 0.8714.

EUR/GBP is unchanged on the recent breaking news over Article 50. "According to the breaking news on The İndependent, a spokesman for Theresa May said the Article 50 process would now not be initiated until next week at the earliest" - Brexit: Article 50 will not be triggered this week - The Independent

As explained in a series of recent GBP/USD news, the market is not concerned as to the timings of the trigger, but focused on more pressing risks such as the Fed's dot plot, assuming that a rate hike this time around is a given, and the US's debt crisis with the ceiling kicking in around $20T on the same day as the Fed. The US could soon run out of funds if there are not favourable negotiations in Washington in which could enable Trump to take forward any plans for implementing fiscal stimulus later this year.  

However, for the cross, the Dutch elections will be taking up most of the market's interest this week while the possibly more important elections in France are just around the corner as well. EUR/GBP has been on a bullish tear of late, fuelled by a less dovish ECB and non-core CPI threatening the 2% threshold. However, the cross has hit a roadblock ahead of the 0.89 handle this week, dropping back to 0.8720 support, as the political tensions start to materialise in the euro zone. However, regardless of whether Geert Wilders wins, it will take many months for a cohesive government in the Netherlands to be formed, and as such, the main focus will be on Le Pen. So, until the French elections, we may not see any dramatic swings in the cross, although the case for a deeper correction towards the strong support at 0.86 remains compelling.

The Dutch will be taking place on Wednesday 15th March, the same day as the FOMC announcements and the freeze on U.S. government borrowings.  However, the results of the Dutch elections won’t be known until the early hours of Thursday morning so we will be keeping an eye on the exit polls at 2000 GMT on Wednesday evening t monitor the performance of the PVV party led by Geert Wilders.

EUR/GBP levels

A trip down to the 0.8600 level will meet the key daily ma cross-over between the 20-d sma and 50-d sma. This is where we saw a daily bearish closing stick break the otherwise daily bullish closing stick's rally from 0.8402. Thus, it is regarded as a strong level of support. Next key support is at 0.8480 (200-d EMA) and the key target is 0.8402, the 22nd February low. the key target to the upside is 0.8852 as the January high.