EUR/GBP Stalls at 0.8575 as German Political Risk Weighs

Key Moments

Euro Struggles to Rebound Against Sterling

The Euro (EUR) is moving sideways just above 0.8570 against the British Pound (GBP) on Monday, consolidating Friday’s decline after the pair retreated from the 0.8600 area. Lower Oil prices are offering some underlying support to the common currency, but political developments in Germany are limiting any sustained upside in EUR/GBP.

The ruling party of German Chancellor Friedrich Merz suffered a significant setback in state elections held over the weekend, undermining confidence in the Euro and capping rallies.

German Political Uncertainty Weighs on Sentiment

Merz acknowledged on Sunday that the election result was a “disaster”, as his centre-right CDU party took the worst beating since 1949, against the far-right Alternative for Germany (AfD). Merz has vowed to remain in office to complete the economic reforms in progress, but the large victory of the Eurosceptic and pro-Kremlin AfD has put investors on their toes.

Lower Oil Prices Offer Some Support to the Euro

On the supportive side for the Euro, Oil prices have extended their recent decline and are now almost 7% below last week’s highs, with Brent trading under the key $100 per barrel threshold. This drop alleviates some pressure on Eurozone economies, which are net importers of energy, and helps underpin the single currency despite political headwinds.

Quiet Trading Conditions as Markets Await Central Bank Signals

Trading conditions during the Asian session on Monday have been subdued, with Japan shut for a bank holiday. Investors are largely in wait-and-see mode ahead of a cluster of monetary policy decisions from major central banks, including the European Central Bank (ECB) and the Bank of England (BoE).

The ECB lifted interest rates and hinted at further rate hikes in the coming months, while the BoE stood pat, although Governor Bailey affirmed that some monetary tightening is likely, which kept the pair contained within previous ranges.

On Monday’s calendar, ECB President Christine Lagarde is due to deliver opening remarks at a roundtable in Frankfurt. The main data focus for the week will be September’s preliminary Eurozone and UK Purchasing Managers’ Index (PMI) readings, scheduled for release on Wednesday.

Technical Picture: Range-Bound and Directionless

Technical Analysis: More choppy and sideways trading ahead

The four-hour chart shows the EUR/GBP trading in a choppy and sideways manner, trapped within a 55-pip range below 0.8600 for already three weeks. Momentum indicators show a lack of clear bias, with the Relative Strength Index (14) at roughly 50 and the Moving Average Convergence Divergence (MACD) marginally below zero.

Upside attempts remain capped at 0.8580 on Monday, although the key resistance is the mentioned 0.8600 area, which held bulls in September 3 and 17. On the downside, immediate support emerges at 0.8572; further down, the bottom of the recent range lies between last week’s lows at 0.8555 and the late August trough at 0.8546.