EUR/GBP price action hinges on Brexit – Danske Bank

Allan von Mehren,. Chief Analyst at Danske Bank, expects the cross to keep looking to Brexit developments for direction.

Key Quotes

“EUR/GBP bounced back above 0.88 again yesterday in a relatively volatile session, where the low end of the 0.8770-0.8925 range was tested multiple times (low yesterday was 0.87719 according to Bloomberg) before EUR/GBP eventually broke higher driven by USD appreciation and profit taking in GBP”.

“GBP held on to its gains after Labour leader Jeremy Corbyn’s speech on Brexit yesterday, suggesting that Labour’s shift in Brexit stance was widely expected. The fact that Labour now supports the idea that the UK should remain within the customs union after Brexit has two opposing implications for GBP: (1) it adds pressure on Theresa May and the UK government, who are advocating for a hard Brexit and rising uncertainty and risks that negotiations could be delayed due to disagreements internally in the UK is negative for GBP, while (2) a softer Brexit would be a less negative result for GBP”.

“Focus now turns to May’s speech on Friday. Any indication of progress or optimism in relation to the upcoming negotiations could spur GBP support. We look for the 0.8770-0.8925 range to hold in the short term with risks skewed to the downside ahead of May’s speech”.