Euro flatlines against the British Pound weighed down by German political uncertainty

• EUR/GBP holds Friday's losses, with price action flat just above 0.8570.
• German Chancellor Merz's defeat in state elections has offset the positive impact of lower Oil prices.
• Markets are witnessing a dozy start to the week with Japan closed on bank holidays.

The Euro (EUR) trades practically flat, just above 0.8570 against the British Pound (GBP) on Monday, holding losses after Friday’s reversal from the 0.8600 area. The common currency is drawing some support from lower Oil prices, although the defeat of German Chancellor Friedrich Merz’s ruling party in the state elections celebrated last weekend is holding Euro rallies.

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.

On the positive side, Oil prices extended their decline, and they are now almost 7% below last week’s highs, with the barrel of Brent Oil trading below the key $100 level. This would give some respite to Eurozone economies, which are net importers, and provide some support to the Euro

Beyond that, markets have remained calm during the Asian session on Monday, with Japan closed for a bank holiday while investors ponder a wave of Monetary policy decisions by most of the 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.

In the calendar on Monday, the ECB President Christine Lagarde will give the opening remarks at a roundtable in Frankfurt, although the highlights of the week will be Augiust¡s preliminary Eurozone and UK Purchasing Managers' Index (PMI) reports, due on Wednesday.

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.

(The technical analysis of this story was written with the help of an AI tool. Know more.)