The EUR/GBP falls as EU Debt Weighs Heavily

The euro fell to a more than two-week low against sterling on Tuesday in Asian trading, coming under broad pressure on concerns about Spain and Greece and on talk of an EU farm subsidy payment to the UK later in the week. The pair is trading this at present at 0.7939

Yesterday there was only one move worth mentioning in EUR/GBP trading. The pair dropped from the 0.7975/80 area to the 0.7955/60 area after the publication of a weak German IFO and Italian Trade Balance data ushered in some risk off sentiment across markets. This caused EUR/GBP to decline to find support at S2 at 0.7958 before moving higher to currently trade 0.7959.

The report kept investors cautious on risk and triggered a now albeit orderly wave of euro selling. In line with EUR/USD, there were no follow-through losses. EUR/GBP settled in a tight range roughly between 0.7960/80 for the remainder of the session. The pair closed the session at 0.7973, compared to 0.7998 on Friday evening. We didn’t see much news from the UK to guide sterling trading.

Today, there are very few eco data on the calendar in the UK. The BBA loans for House Purchases. BoE’s Fisher speaks in London. EUR/GBP traders will keep an eye on the price swings in the EUR/USD headline pair. The first indications this morning suggest that the euro is still fighting an uphill battle.

Last week, we had the impression that sentiment on sterling was improving a bit. For now, this trend is still supported. If so, this might make any sustained rebound of EUR/GBP even more difficult than might be the case for EUR/USD. There is room for EUR/GBP to drift further south short-term.

From a technical point of view, EUR/GBP reached a correction low at 0.7755 at the end of July. The commitment of ECB’s Draghi to do whatever is needed to protect the single currency provided also a solid support for EUR/GBP. The pair reached a corrective top at 0.7963 mid-August. A new upleg early September pushed EUR/GBP beyond this level. This break improved the technical picture. That said, the price action in both EUR/USD and cable is for an important part driven by the dollar side of the story. This made us more cautious on further gains in this cross rate than might be the case for EUR/USD. Until early last week, the day-to-day momentum remained EUR/GBP supportive, but from there, the topside in EUR/GBP became difficult.