- EUR/GBP is correcting the recent 4% rally, which could make way for further upside.
- Brexit is the major concern for the pound as the clock counts down.
EUR/GBP is trading at 0.9191 at the time of writing, down some 0.44% having travelled from a high of 0.9258 and scoring a recent low of 0.9183.
The price is being driven by Brexit uncertainty, Bank of England and the European Central Bank sentiment as both economies steer through the second waves of the COVID-19 pandemic as we head into the flu season.
Another potential political fallout between the bloc nations
The eurozone has taken up the status as the epicentre of the virus once again as daily cases have started to exceed that of North America.
The risk for the euro is that the current rescue package will not be enough to protect the economy from subsequent lockdown measures which could bring back a potential political fallout between the bloc nations.
There is also plenty ongoing in the geopolitical front which could bring back support for a wilting greenback that would likely weigh on the euro most of all.
Brexit risks mounting
Meanwhile, Brexit is capturing the majority of the headlines since the pound tumbled almost 3% vs the greenback and over 4% vs the euro last week.
The UK's Prime Minister, Boris Johnson won yesterday's vote in the Commons when he was securing a vote in favour of his internal market bill at the first reading.
However, there is plenty more risk to follow as greater resistance is likely to come from the Lords.
Either way, it is negative for the pound given that if the government loses which would undermine Johnson’s leadership, the pound would be pressured.
Or, if the government wins and a no-trade-deal Brexit becomes more likely, would also see the pound pushed closer to the edge of the abyss.
GBP overbought in positioning
From a positioning perspective, both the euro and the pound are arguably sitting in highly overbought environments, but that is mostly down to dollar weakness and the market's complacency over the threat of flu season.
Both the UK and the eurozone are extending social distancing measures as flue season brings about a very concerning threat.
How will one know if they have just the regular flu or the coronavirus? the ramifications could lead to extreme social behaviours short that would weigh heavily on consumer consumption, business investment and confidence and ultimately, higher levels of prolonged unemployment.
GBP net positioning is at surprisingly high levels compared to periods when the risk of a “hard” Brexit was comparable to the current one.
The Brexit and flu season factor could well see a monumental shift in the data over the next month or so.
If the government fails to boost investment confidence, the long shadows over the UK economic outlook could remain in place for longer and this in turn suggest that fear of a BoE negative interest rate could remain on the table,
analysts at Rabobank argued.
EUR/GBP levels
Bearing in mind that the EUR has displayed broad-based strength in recent months, an escalation of tensions between the EU and UK governments with respect to the latter’s intention to break its commitment to the Withdrawal Agreement could threaten a move towards last year’s high in the 0.9325 area in the coming weeks,
the analysts at Rabobank explained.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
![EUR/USD consolidates below 1.0500 amid light trading](https://editorial.fxsstatic.com/images/i/EURUSD-bearish-object_Medium.png)
EUR/USD consolidates below 1.0500 amid light trading
EUR/USD struggles to capitalize on recent upside and oscillates in a narrow range below 1.0500 early Monday. However, the pair's downside remains cushioned by persistent US Dollar weakness and an upbeat mood. Focus shifts to central bank talks.
![GBP/USD ranges near 1.2600 as US Dollar steadies](https://editorial.fxsstatic.com/images/i/GBPUSD-bullish-object-1_Medium.png)
GBP/USD ranges near 1.2600 as US Dollar steadies
GBP/USD keeps its range near 1.2600 in the early European session on Monday. The pair stays support amid a subdued US Dollar price action following Friday's disappoining US Retail Sales data. Thin trading is likely to extend as US markets are closed in observance of Presidents' Day.
![Gold price bulls have the upper hand near $2,900 amid trade war fears and weaker USD](https://editorial.fxsstatic.com/images/i/Commodities_Gold-1_Medium.jpg)
Gold price bulls have the upper hand near $2,900 amid trade war fears and weaker USD
Gold regained positive traction on Monday amid sustained USD weakness. Concerns about Trump’s tariffs further benefit the safe-haven XAU/USD pair. The fundamental and technical setup underpin prospects for additional gains.
![Cardano set for 20% rally as bullish bets increase](https://editorial.fxsstatic.com/images/i/ADA-bullish-animal_Medium.png)
Cardano set for 20% rally as bullish bets increase
Cardano price extends its rally on Monday after gaining more than 13% last week. On-chain metrics suggest a bullish picture as ADA’s long-to-short ratio reached the highest level in over a month.
![Tariffs likely to impart a modest stagflationary hit to the economy this year](https://editorial.fxsstatic.com/images/i/Economic-Indicator_GDP-3_Medium.png)
Tariffs likely to impart a modest stagflationary hit to the economy this year
The economic policies of the Trump administration are starting to take shape. President Trump has already announced the imposition of tariffs on some of America's trading partners, and we assume there will be more levies, which will be matched by foreign retaliation, in the coming quarters.
![The Best Brokers of the Year](https://editorial.fxsstatic.com/images/Brokers/Editors_Pick_Box_395x179_Medium.png)
The Best Brokers of the Year
SPONSORED Explore top-quality choices worldwide and locally. Compare key features like spreads, leverage, and platforms. Find the right broker for your needs, whether trading CFDs, Forex pairs like EUR/USD, or commodities like Gold.