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  • EUR/GBP gains traction for the second straight session on Wednesday and refreshed weekly tops.
  • The overnight dovish comments by the BoE Governor Bailey continued undermining the sterling.
  • Brexit optimism, an offered tone around the shared currency might keep a lid on any further gains.

The EUR/GBP cross broke out of its consolidative trading range and spiked to fresh weekly tops, around mid-0.9100s during the early European session.

The cross built on this week’s goodish bounce from the 0.9025 region, or three-week lows and gained some follow-through traction for the second consecutive session on Wednesday. The British pound’s relative underperformance against its European counterpart could be attributed to the BoE Governor Andrew Bailey’s overnight dovish comments.

Speaking at an online event organized by Queen’s University Belfast, Bailey said that the BoE was not out of ammunition with regards to additional quantitative easing. Bailey further added that policymakers have not ruled out the possibility of using negative interest rates but are realistic about challenges from banking retail deposits.

Bailey’s remarks overshadowed the recent optimism over a Brexit deal and turned out to be one of the key factors weighing on the sterling. Hopes of Brexit deal were further lifted by reports that both sides had been able to engage more closely on the contentious issues of fishing opportunities and state aid, albeit did little to impress the GBP bulls.

On the other hand, the shared currency was being weighed down by a modest pickup in the US dollar demand and comments by the ECB President Christine Lagarde, saying that low inflation poses fundamental challenges. This, in turn, kept a lid on any runaway rally for the EUR/GBP cross, at least for the time being.

From a technical perspective, the positive momentum, for now, stalled near a resistance marked by a downward sloping trend-line resistance, extending from near six-month tops set on September 11th. This makes it prudent to wait for some strong follow-through buying beyond the mentioned barrier before positioning for any further appreciating move.

Technical levels to watch