EUR/GBP Back Down to 85 Cents?

EUR/GBP Back Down to 85 Cents?

EUR/GBP Back Down to 85 Cents?

Both the euro and sterling traded higher against the greenback today but euro is struggling to break above 1.0750. Part of the move can be attributed to the sharp drop in German bund yields and EUR/GBP selling. The Eurozone’s January PMI reports are scheduled for release tomorrow morning and while the drop in German industrial production and factory orders point to lower activity, the weaker euro may have offset some of that pain. Either way, we believe its only a matter time before EUR/USD makes a run for 1.08 and that move will be driven primarily by U.S. dollar weakness. Meanwhile sterling was the second best performing currency today was the British pound which broke 1.25 versus the U.S. dollar. Sterling is a big focus this week with the U.K. Supreme Court’s ruling on Article 50 due on Tuesday. The British pound performed extremely well today as it is almost certain that the Court will vote in favor of Parliament’s approval in triggering article 50, which would spark another near term spike in GBP. However if we are wrong and they say no approval is needed, sterling could slip quickly. Aside from the U.K. Court’s decision, we are also watching for any interesting headlines from Prime Minister May’s trip to Washington. If the U.S. throws its support behind a strong bilateral trade deal with the U.K. (and we think they will), sterling will trade sharply higher on the hope that other nations will follow.

Technically EUR/GBP is breaking down and with 86 cents given, the currency pair is likely to aim for 0.8525, the 50-day SMA. If it breaks back above 0.8650, we should see a stronger move towards 0.8700.

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