Watch the 0.8565 level on EUR/GBP

Yesterday’s attempts by EUR/GBP to break nearer the 86p level failed, and so far today has proved similar despite better-than-expected eurozone consumer and business confidence numbers.

The business economic sentiment indicator rose to 97.8 in October, from 96.9 in September, reaching its highest level since August 2011. However, retail sales data from Europe has given traders less to cheer. The index has remained below the 50 marker which separates expansion from contraction, and printed its fastest monthly rate of decline since May. The 47.7 number for October is reflective of a deep contraction in Italy.

Nevertheless, today’s Italian bond auction was something of a success, with an average yield of 4.11% and a bid-to-cover of 1.5. This compares very favourably with the previous debt sale, which yielded 4.5%.

Evidence of deflation setting in will have to be dealt with, and while the European Central Bank is discounting negative interest rates it’s becoming clearer that the tools needed to address these problems are lacking.

The 0.8565 level is the barrier to upside for EUR/GBP, and until a daily close occurs through this level we may have to be content with sideways action. The RSI is registering an overbought momentum in the FX pair. Support comes in around the 0.8510/20 level, and any breach of current resistance points will target the August highs of 0.8650 in the near term.

Spot FX EUR/GBP chart

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