EUR/GBP sidelined above 0.8800 ahead of UK wages on Tuesday

• Italy’s tax reform can hurt European Union’s reform but foreign exchange markets shrug off the news. 
• UK’s labor market report on Tuesday is likely to move the market next.

The EUR/GBP is trading at around 0.8820 virtually unchanged on Monday with both the Euro and Sterling both moving higher in tandem against the US Dollar.

The EUR/GBP is trading flat on Monday coiling around the 0.8820 level. Last week the currency cross got a strong 100-pip boost on the back of the Bank of England’s dovish comments. As this Monday is light on the macroeconomic calendar, the currency cross will mainly be driven by the general market sentiment, the political situation in Italy and the ECB officials speaking. The next directional move on EUR/GBP might be seen on Tuesday with the UK labor market report for April due. 

Monday is seeing a plethora of European Central Bank’s officials' speeches including ECB chief economist Peter Praet and ECB’s executive board member Benoît Cœuré speaking.

On the political front in Italy, the two populist parties, Five Star and League are about to set up a flat tax of 15%, a guaranteed income for the poorest part of the population as well as a lower retirement plan. The two parties are now waiting for their new proposals to be approved by Italy’s President Sergio Mattarella this Monday. 

European stocks are lower on Monday as concerns over the tax plan can threaten Italy’s finances and possibly even slow economic growth in the country. Additionally, talks of reconsidering treaties with Europe sparked concerns that Italy could hurt efforts for the European Union reform. However, the euro currency is largely unaffected by the political situation in Italy.

On the other hand, the British pound negative sentiment persists as the Bank of England sounded rather dovish last Thursday. If the wage data on Tuesday come lower-than-expected it can be another blow for GBP.

EUR/GBP 4-hour chart 

The medium-term trend is slightly bullish and the market is currently capped by the 0.8850 resistance. A break above it could lead to the 0.8900 handle and to the 0.8970 swing high. To the downside, bears can find support at 0.8727 swing low and at 0.8620 cyclical low.