Sterling still pushing for better levels as Juncker comments fuel optimism
Last night, we again heard from the EU commissioner Jean Claude Juncker, who is set to be replaced later this year by Ursula von der Leyen. The outgoing president suggested that a deal could be in place between the UK and EU, as the two sides continue to try and find a workable solution/alternative to the troublesome Irish backstop. Until now, the EU has been adamant that the current agreement has to stand, but as we know, the UK is insisting that this needs to be removed and replaced in order to get an agreement in the UK parliament.
Consequently, this easing of red lines - or so it seems - has given the market some optimism over a possible breakthrough in talks and Sterling has reacted in kind. Having found continued resistance above the 1.2500 level, Cable has now burst through this psychological level, and we are now eyeing a move on the next (1.2600) big figure level, though 1.2650-60 is the next area of congestion after that. Ultimately though, 1.2750-1.2800 is where a key break would signal a more relaxed outlook on GBP.
Alongside this, EUR/GBP has absorbed the bids seen ahead of 0.8800 and breaking lower, we have run into more demand ahead of the next bank of support in the 0.8725-50. Given the weakness in the EUR from the Eurozone perspective - and leading into the ECB meeting last week - the cross rate has been under a lot of pressure lately and there is little sign as yet that this will change. Only a breakdown in UK-EU talks will send this pair higher in the near term, and/or renewed fears that we are heading for no deal at the end of October.