EUR/GBP: testing below 0.8900 (4hr 200 SMA) on a key week ahead

- A shift from Brexit to BoE rate hike expectations?
- ECB will be a highlight for the cross this week
- Eyes on UK GDP

Currently, EUR/GBP is trading at 0.8908, down -0.28% on the day, having posted a daily high at 0.8932 and low below the 200 4-hr SMA (0.8904) at 0.8899. Sterling is looking a little 'touch-and-go' on the recent Brexit headlines of late, with soft Brexit noise last week and PM's May's sound bites from speaking in Parliament today underpinning the notion of a soft Brexit as well. 

Brexit: UK's PM May is confident on UK getting a good deal with EU

EU's Junker said earlier:

• The UK must agree on divorce bill before trade talks.
• Dinner with UK PM May was positive.

Thus, while it seems there is still some way to go before the deadlock is unclocked, focus turns back to the Central banks, with the ECB meeting this week and timings of a QE taper with forever changing expectations of a BoE rate hike.

BoE November rate hike expectations currently supporting sterling, but UK GDP to disappoint? 

Also, to some extent, the UK's first print of GDP could be an event for the pound; albeit, traders might be slightly hesitant on that considering it is only based on a limited amount of information (40% of what is typically needed to produce a final estimate of GDP); it is often revised and bulls might be disappointed given the series of data misses of late. However, considering that the markets are about 25% priced in for a rate hike from the BoE's at the MPC November's meeting, it will garner attention, and, "industrial production looks set to have rebounded well in Q3, while there is much uncertainty about how swiftly services output will have recovered from its fall in July. We look for a 0.4% q-o-q rise, which would be an improvement on the 0.3% growth rates in the first half of the year," argued analysts at Nomura.

"This sharp swing in," (rate hike), "expectations is almost entirely the result of the step up in hawkish rhetoric proffered by the MPC rather than a response to UK economic data. Indeed, while UK CPI inflation has edged up to 3%, activity series is showing signs of weakening," explained analysts at Rabobank. 

EUR/GBP levels

0.8890/00 is now the current daily range. On the way down, below 0.8850/80 and 0.8800, the next major band of support extends from the 14th July low at 0.8748 to 0.8720 being the 2015-2017 uptrend and where the 200 DMA and the 55-W MA are also located. In the near term, 0.8930 caps where the 50 4hr SMA is located.

To the upside, the correction through the 50-D SMA, now at 0.9001, failed to hold again and this is where the base of the cloud is located along with the 50% retracement at 0.9027, (a key turn-point area for the bulls). 0.9033 was the 12th Oct. 

A break of 0.9145 and closes on the 0.92 handle brings the 0.9308 August high into focus. On the way down, below 0.8850/80 and 0.8800, the next major band of support extends from the 14th July low at 0.8748 to 0.8720 being the 2015-2017 uptrend and where the 200 DMA and the 55-W MA are also located. In the near term, 0.8930 caps where the 50 4hr SMA is located.