EUR/GBP clings to gains above 0.8450 as Brexit woes cloud the GBP again


  • BoE’s Chief Economist Huw Pill: Inflation in the UK could top 5%.
  • Brexit: The EU could terminate the post-Brexit trade deal with the UK.
  • EUR/GBP: The 1-hour chart depicts the pair is tilted to the upside, confirmed by RSI at 63.50 and aiming higher.

The EUR/GBP edges higher as the New York session progresses, gains almost half percent, trading at 0.8461 during the day at the time of writing. In the Asian session, the pair reached the day’s lows, around 0.8420, as the Bank of England Chief Economist Huw Pill said UK inflation could hit 5%.

In an interview with the Financial Times, Huw Pill said that he would not be surprised if the BoE saw an inflation print close to or above 5% in the following months.  Pill added that for a central bank with an inflation target of 2%, a 5% reading would be “very uncomfortable.”

Huw Pill’s comments are much in line with the BoE Governor Andrew Bailey, which said on Sunday that if rising inflation is stickier than expected, the bank “will have to act” to contain upside risks.

Brexit: The EU could terminate the post-Brexit trade deal with the UK

According to Bloomberg, the EU could end the post-Brexit trade deal with the UK.

Both sides are under intense negotiations after the EU offers some proposals like reducing or slashing inspections between the two territories and easing imports of goods, including meats, sausages, and medicines.

Despite that offer, what the UK wants is the removal of the oversight of the European Court of Justice from Northern Ireland.

“Should the UK stick to its position that the top EU court should have no role in Northern Ireland’s trade affairs, then a deal is unlikely, one of the people said.”

Once the news hit the wires, the GBP/USD plunged to 1.3736 after the report.

On the macroeconomic front, the Eurozone docket featured the IHS Markit PMI’s for October. The German PMI Manufacturing PMI rose to 58.2 versus a 56.5, foreseen, contrary to the Services PMI, which increased to 52.4 lower than the 55 estimated. The Markit PMI Composite, which considers both readings, was at 52, lower than the 54 expected.

Meanwhile, the UK economic docket unveiled the Retail Sales for September, which shrank 0.6% on a monthly basis, worse than the 0.2% expansion expected by analysts. Moreover, the annual figure collapsed 2.6% versus a -1.7% estimated by investors.

EUR/GBP Price Forecast: Technical outlook

In the 1-hour chart, the EUR/GBP pair trades above the 200-simple moving average (SMA), closing to the October 20 high at 0.8460. Around that level lies the R3 pivot point at 0.8462. In the outcome of an upside break, the first resistance level would be the October 15 high at 0.8486. If the pair has enough legs to extend the upward move, the next resistance would be the October 13 high at 0.8497.

Momentum indicator like the Relative Strength Index (RSI) is at 63.50, aiming higher, indicating the EUR/GBP pair has enough room for another leg-up before reaching overbought levels.