According to a German government official, cited by Reuters and Bloomberg
EU must prepare for all Brexit scenarios
Well aware that a swift Brexit deal is in the interests of businesses, citizens
Expects May to present her view of Brexit progress before summit
The discussions tomorrow at the summit isn't expected to produce any breakthrough but it is all about posturing towards a deal to be made in November. The language coming out of the summit this week will be key to trading sentiment and that's really all markets can go on at this point.
A more optimistic tone that a deal can be struck will help the pound produce a relief rally and given how much the market is positioned short in the pound, the upside from any semblance of a Brexit deal can see the pound rally quite substantially: