The European common currency is blocked by the Italian case. Rome has approved the draft budget with the planned increase in the deficit, which is however opposed by the EU. The draft budget was submitted yesterday in Brussels and is waiting for an official opinion, but last week we heard the EC's initial position critical for "significant deviations" from the economical path recommended by the EU Council. If Italy does not go out and make no changes, the EU may initiate an excessive deficit procedure that will result in the imposition of sanctions. Hence the very rise in Italian debt yields may exert pressure on EUR and undermine the ECB's plans to normalize monetary policy.
In addition, EUR indirectly suffers from the specter of breaching Brexit negotiation talks with a major impact directed towards GBP. The EU summit is starting today, and so far nothing indicates that there will be an agreement this week. It can be said, however, that after the grim reports from the weekend, yesterday both sides tried to comment on the matter in a positive tone. The reason for the dispute remains the nature of the border between Ireland and Northern Ireland. The details are about customs control conditions and other legal regulations in case the EU and the UK. Britain will not enter into a free trade agreement until the end of the transition period (at the end of 2020), the so-called backstop agreement. As long as the risk of a "no-deal Brexit" cannot be ignored, a negative bonus will be included in European assets.
Let's now take a look at the EUR/GBP technical picture at the daily time frame. The market has been moving down in a descending channel since the top at the level of 0.9098. The recent low was made at the level of 0.8727 and since then, the price has bounced a little towards the nearest daily resistance at the level of 0.8847, but failed to break through. The market conditions are now oversold, but the momentum remains weak and negative, so any bullish attempt to rally should be treated as a local correction only.
