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11 May 2021

EUR/GBP clings to gains near session tops, just above 0.8600 mark

  • EUR/GBP regained positive traction on Tuesday and recovered a part of the overnight slump.
  • The shared currency got a minor lift following the release of a better-than-expected ZEW survey.
  • Investors look forward to a scheduled speech by the BoE Governor Bailey for a fresh impetus.

The EUR/GBP cross edged higher through the first half of the European session and shot to fresh daily tops, around the 0.8615 region in reaction to upbeat German data, albeit lacked follow-through.

The cross gained some positive traction on Tuesday and recovered a part of the previous day's slump to over one-month lows, led by the outcome of the Scottish election. Nicola Sturgeon’s Scottish National Party (SNP) fell short of securing an outright majority by the narrowest possible margin and pushed back the risk of an imminent independence referendum.

This comes on the back of an optimistic outlook for the UK economy – amid a sharp drop in COVID-19 deaths and new cases – and prompted aggressive short-covering around the British pound. Adding to this, the UK Prime Minister Boris Johnson on Monday confirmed the next stage of lockdown easing in England, which provided an additional lift to the sterling.

As investors digested the recent developments, a goodish pickup in demand for the shared currency extended some support, rather assisted the EUR/GBP cross to catch some fresh bids on Tuesday. The uptick picked up pace following the release of the upbeat German/Eurozone Economic Sentiment Index, which beat expectations by a big margin and jumped to 84 in May.

Bulls seemed rather unaffected by dovish comments from the ECB policymaker, Francois Villeroy de Galhau, saying that the PEPP program will continue at least until March 2022. Villeroy further mentioned that tapering talk is purely speculative and monetary policy will remain accommodative even if the PEPP program were to ease up.

Meanwhile, the intraday positive move lacked any bullish conviction as investors prefered to wait on the sidelines ahead of the Bank of England Andrew Bailey's speech later this Tuesday. Hence, it will be prudent to wait for some strong follow-through buying before positioning for the resumption of the recent recovery move from over one-year lows touched in April.

Technical levels to watch

 

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