[cppene]

Resistance at 0.8731, the 23.6% retracement of the decline from the 2008 high to the 2009 low. A break above this level would open the way to the 200-day moving average, currently at 0.8869. It is interesting to note that, according to Bloomberg, GBP is the only currency in the G10 space that is down versus the USD over the last week, suggesting that its high beta status may be temporarily waning as the market focuses on monetary policy developments in the UK. The two-year EZ-UK swap rate differential has narrowed by about 9bp over the last week. This is just part of the approximate 25bp rally since the first week of August. In this context, we would argue that the underlying back-drop remains sterling-negative and any potential pull-backs in risk could reinforce this move. The bottom line is keep an eye on the EUR-GBP 0.8731 level, as a break above in the near future is looking
increasingly likely.