Buy dips in EUR/GBP near term – Danske Bank

Vladimir Miklashevsky, Senior Economist at Danske Bank, recommended buying the occasional dips in the European cross in the short-term horizon.

Key Quotes

“GBP gained on Friday and EUR/GBP dipped below 0.895 as the EU’s chief negotiator, Barnier, softened his language on EU demands related to the Irish border issue. Communication from both the EU and UK has been remarkably positive and solution seeking in recent weeks, which has helped reduce the Brexit risk premium somewhat”.

“The EU’s recent positive stance towards UK Prime Minister Theresa May’s Brexit plans (the so-called White Paper) is either (1) an attempt by the EU to boost May’s support internally in the UK Conservative Party ahead of the Annual Party Congress which begins on 30 September or (2) sincere positive signs that negations are moving forward. Either way, if the flow of positive news continues, it should help underpin the GBP in the near term”.

“However, we still think the UK Conservative Party congress is an important hurdle before the Brexit end-game, and still see EUR/GBP upside risks around this event. Hence, our tactical bias would be to buy EUR/GBP on dips rather than sell the rallies ahead of 30 September”.