SendGrid as smarthost - failed in server_plain_authentication

Question

Hi All! 
 My ISP recently decided to block outgoing port 25. I've always used O365 as smarthost to relay e-mail, the downside is that O365 only supports port 25 for relaying to external recipients hence I am in need for a different solution. 
 I've reverted to SendGrid, hoping it would give me a solution to use as smarthost for e-mail, which it does by offering a SMTP relay feature. After confg and testing, it seems that XG does not correctly authenticate to SendGrid ? 
 What could be missing here making it not willing to deliver? 
 Supported ports by SendGrid are:

Ports

25, 587 
 (for unencrypted/TLS connections)

465 
 (for SSL connections)

Emails end up in the spool as failed: 
 
 Under General settings:

It does try to communicate, in the packet capture there is an exchange of certificates (from GoDaddy) including "smtp.sendgrid.net":

BartJen · Accepted Answer

That explains the behaviour, hope there is a uservoice for this. Thanks for the quick response!

LuCar Toni · Answer

There is an limitation about upstream authentication. 
 See known issue list:

NC-9106 
 Framework part of base (deprecated) 
 Mail notification isn't working with Microsoft Office365. 
 Sophos Firewall supports STARTTLS and SSL/TLS to encrypt emails. However, for SMTP, it only supports PLAIN authentication, which Office 365 doesn't support.
 Configure an intermediate relay to workaround this behavior.

SendGrid as smarthost - failed in server_plain_authentication

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