EUR/GBP flirting with lows, around mid-0.8900s

   •  Widening Italy-German 10-year yield spread exerting downward pressure on EUR.
   •  Downbeat Bundesbank monthly report adds to the already weaker sentiment.
   •  Brexit uncertainties keep a lid on GBP and seemed to help limit sharp downfall.

The EUR/GBP cross traded with a negative bias through the early European session on Monday and snapped three consecutive days of winning streak. 

The cross struggled to build on last week's goodish up-move and some fresh political jitters from Italy, wherein the populist government is said to be planning to ignore budget rules imposed by the European Union and draw up a ‘Marshall Plan’ to rebuild the country’s ailing infrastructure after the Genoa bridge collapse. 

Fears over Italy's potential clash with the EU was evident from widening Italy-German 10-year yield spread, which has now jumped back above 300 bps and was eventually seen weighing on the shared currency at the start of a new trading week. 

Adding to this, downbeat Bundesbank's monthly report on the German economic outlook, anticipating that Q3 German growth may be somewhat slower than 1H 2018, did little to revive demand for the common currency and extend some immediate support to the cross.  

Meanwhile, Brexit uncertainties continue to keep a lid on any strong up-move for the British Pound and turned out to be the only factor that has helped limit any immediate sharp corrective slide, at least for the time being. Hence, the key focus would remain on the release of a series of technical notices for no-deal preparation by the UK government. 

Technical levels to watch

Any subsequent weakness below mid-0.8900s now seems to find immediate support near the 0.8920-15 region and is closely followed by the 0.8900 handle. On the flip side, momentum beyond the 0.8975-80 immediate hurdle might now lift the cross further towards reclaiming the key 0.90 psychological mark.