EUR/GBP stuck around 0.87 post ECB, watching politics from here

Currently, EUR/GBP is trading at 0.8697, up 0.36% on the day, having posted a daily high at 0.8722 and low at 0.8656.

EUR/GBP is testing back below the 0.87 handle after the rally on the back of a less dovish ECB that the market had been expecting. In respect of the ECB, the ECB announced no policy changes today. President Draghi confirmed the Bank’s commitment to buy EUR60bn of assets per month until at least the end of the year. He also reiterated that the pace or duration of asset purchases could be increased if needed. 

However, as noted by analysts at Nomura, the more noteworthy development in the post-meeting press conference was President Draghi’s comments about the risk assessment:

"He stressed that the balance of risks to the growth outlook had improved even though they were still tilted to the downside. But because of less pronounced downside risks the ECB has removed the reference to use “all instruments within its mandate” to meet its inflation goals," explained the analysts at Nomura, adding, "And in sympathy with this there was no discussion about the need for further TLTROs at the Governing Council’s meeting. The upward revisions that were made to the ECB’s GDP and inflation forecasts were also of interest, though these were mostly in line with our expectations."

EUR/GBP driven with EUR/USD breaking 1.0600

EUR/GBP was driven higher initially with the euro breaking the 1.06 handle when Draghi was speaking. "The ECB’s risk assessment has likely become more balanced. These communications support EUR for now," explained the same analysts at Nomura, "However, our EUR trading view and strategy remain unchanged. We expect EUR to benefit from the reflation in the medium term and we target 1.15 for EUR/USD by year-end. Nonetheless, over the next few months, French elections and the Fed policy stance will likely be more important drivers of EUR/USD, as they pose near-term downside risks."

EUR/GBP will be a political stand-off from now on

With the Brexit risks weighing on sterling, the cross will be caught within a political stand-off throughout 2017. Should the elections in the Netherlands and France squash the current populist trend, the euro could really benefit and could have the edge over the pound in the medium/longer term. We are just a handful pf pips away from the 15th August 2015 high at 0.8724 within the February 2017 recovery. 

EUR/GBP levels

EUR/GBP broke 0.8651/71, the February high and the 30th December highs. It now needs to close above these levels to maintain the bullish channel targeting 0.8850 and 2017 YTD highs. "On pull-backs, Initial support is the 200-day ma at 0.8521 and the 0.8401 22nd February low. Where are we wrong? Only a close above 0.8671 would allow for another run up to the 0.8852 January high," argued analysts at Commerzbank.