Danske Research likes short EUR/GBP exposure around current levels targeting a move towards 0.8650, with a stop at 0.9300.
"While EUR/GBP has been on a steady decline since mid-September, when the cross traded at 0.925, we think there is still room left for further declines near term. We see two main reasons for a stronger GBP near term," Danske notes.
"Firstly, we expect a relief rally in GBP on the back of a Brexit deal, which remains our base case (60%). A deal is also likely to lead to a slight repricing of the Bank of England, where investors are still pricing in a probability of a rate cut into negative territory, which we think is unlikely in case of a Brexit deal. At the time of writing, investors are pricing in a nearly 30% probability of a 25bp rate cut over the next year.
Secondly, we think GBP, as a cyclically sensitive currency, will benefit near term from risk-on supported by continued positive vaccine news and easing of restrictions in Europe in spring," Danske adds.