EUR/GBP on front foot amid subdued UK job data and Brexit squabbling

• Sterling is under pressure on subdued UK job data and ongoing Brexit uncertainty.
• Market is quite confident about ECB normalization despite mixed EZ economic data.

The EUR/GBP is trading around 0.8840 in New York Session, up by 0.3% on subdued UK labor market report published earlier on Wednesday coupled with ongoing Brexit squabbling.

With the UK wage growth being in the epicenter of the market attention, the good news is that the nominal weekly earnings rose 2.5% y/y slightly better than expectations. The dark side of the nominal wage growth is still well below the 3% inflation rate so the real, inflation-adjusted wages fell -0.3% y/y. 

The initial knee-jerk reaction of Sterling was to the downside as the UK unemployment rate ticked up to 4.4%. Adding to the negative side of the report, previous wage growth was revised to the downside to 2.3% from 2.4% originally reported. 

All eyes are now on BOE's Inflation report testimony to the UK parliament.

In the ongoing Brexit saga, the UK official said they are in a broad alignment with the EU on the transition period. Meanwhile, UK Prime Minister Theresa is facing pressure after 62 Tory hardliners demand clean Brexit, with lawmakers challenging Theresa to take a harder approach on how far the UK rules should move away from the EU after Brexit and the nature of the transition period.

On the other side, EUR came into pressure on Wednesday, after a flurry of muted PMI data across the Eurozone including Germany, which casts a shadow on the narrative of reflation.

Meanwhile, the ECB Governing Council member Vitas said that QE should be tapered, to avoid abrupt ending. He also emphasized that ECB has not seen any unwarranted tightening in conditions and it’s appropriate to rephrase guidance to focus on all instruments, not just QE.

The comments by Vitas are not new and the market is quite confident that the ECB will close the QE completely by December 2018 and begin to gradually normalize (hike) its policy rate from H1-2019 onwards. 

Technically, EURGBP now has to sustain over 0.8875 for a further rally towards 0.8911- 0.8929 and 0.8996-0.9082 otherwise, sustaining below 0.8850  it may again fall towards  0.8830 -0.8805 and 0.8775-0.8730/0.8680 as par Fibonacci retracements from December 2017 low to January 2018 high.