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  • EUR/GBP gained traction on Monday and built on last week’s goodish rebound.
  • The shared currency remained well supported by the EU recovery fund agreement.
  • A modest pickup in demand for the pound capped the upside near the 0.9135-40 area.

The EUR/GBP cross retreated around 20 pips from the early European session bullish spike to four-week tops and was last seen trading with modest gains, just above the 0.9100 mark.

The cross built on last week’s goodish bounce from the key 0.9000 psychological mark and gained some follow-through traction on the first day of a new trading week. The shared currency remained well supported by the latest optimism over a landmark agreement on €750 billion pandemic recovery fund.

The euro got an additional boost following the release of German IFO Business Climate Index, which came in at 90.5 in July as against the anticipated rise to 89.3 from 86.2 previous. This comes on the back of Friday’s upbeat Eurozone PMI prints, which pointed to a V-shaped economic recovery.

Meanwhile, the Current Economic Assessment arrived at 84.5 points for the reported month as compared to last month’s 81.3 and 85.0 estimated. The IFO Expectations Index also improved further to 97.0 in July, up from the previous month’s reading of 91.4 and better than the market expectations of 93.7.

On the other hand, the British pound benefitted from a broad-based US dollar weakness and seemed rather unaffected by renewed fears of a no-deal Brexit. A stronger GBP turned out to be a key factor that kept a lid on any further gains for the EUR/GBP cross near the 0.9135-40 supply zone.

It is worth recalling that the latest round of negotiations ended last Thursday without significant progress on the post-Brexit trade deal. Britain’s chief Brexit negotiator David Frost said that they will not be able to strike a preliminary agreement by the UK PM Boris Johnson’s July deadline.

Nevertheless, the near-term bias for the EUR/GBP cross remains tilted in favour of bullish traders. A sustained move beyond the mentioned barrier will reinforce the positive outlook and set the stage for a move beyond the recent swing high, around the 0.9175 region, towards reclaiming the 0.9200 mark.

Technical levels to watch