- The sterling last week outperformed its European counterpart amid the latest Brexit optimism.
- Concerns about rising COVID-19 cases, softer Eurozone CPI undermined the common currency.
- The set-up favours bearish traders and supports prospects for a break below the 0.9000 handle.
The sterling outperformed its European counterpart in the previous week amid a flurry of incoming Brexit-related headlines. EURGBP extended its recent sharp pullback from the vicinity of the 0.9300 mark and settled just above multi-week lows, set at the start of the week.
The British pound was supported by the optimism over a possible post-Brexit trade deal between the EU and UK, despite the lack of progress in the latest round of negotiations. In the latest development, both London & Brussels signalled the continuation of intensified Brexit talks to close significant gaps related to fisheries & government subsidies.
On the other hand, the shared currency was weighed down by fresh concerns about the economic recovery in Europe amid the second wave of coronavirus infections and softer-than-expected Eurozone consumer inflation figures, which showed that the headline CPI dropped -0.3% YoY in September. On a monthly basis, the CPI is expected to have increased by 0.1%, while the core CPI is seen advancing 0.2%.
The pair faced rejection near a resistance marked by the top end of a three-week-old descending channel. A subsequent fall below the 0.9060 horizontal support favours bearish traders. This, coupled with the fact that oscillators on the daily chart have just started drifting into the bearish territory, favours bearish traders. Hence, some follow-through weakness towards the recent swing lows, around the 0.9025 region, en-route the key 0.9000 psychological mark, now looks a distinct possibility. The downward trajectory might eventually aim to test the trend-channel support, currently near the 0.8975 region, which if broken will pave the way for additional weakness.
On the flip side, the 0.9100 handle now seems to act as an immediate hurdle. Any further move up will now be seen as a selling opportunity and remain capped near the 0.9125 region, or trend-channel resistance. That said, a convincing breakthrough will negate the bearish outlook and trigger some aggressive short-covering move. Hence, fresh bearish positions should be accompanied by appropriate stop-loss near the mentioned barrier.