EUR / GBP clings to modest gains but lacks continuation above 0.8700 level

• Pound sterling’s relative underperformance helps EUR / GBP regain traction on Friday.
• Disappointing German GDP and a stronger USD weigh on the euro and limit gains.
• Upbeat Eurozone GDP and CPI figures fail to impress bulls or provide fresh momentum.

The crossing EUR/GBP clings to its modest intraday gains after the release of EU macroeconomic data, with bulls still waiting for a sustained move above the round level of 0.8700.

The crossing has managed to regain some positive traction on the last day of the week and now has approached the upper end of its four-day trading range. The relatively underperformance of the British pound versus its European counterpart could be attributed to the risk posed by next week’s Scottish elections.

Polls point to a supermajority of pro-independence parties in the Scottish parliament, which could intensify the pressure for a referendum on independence. This, to a greater extent, has offset optimism about a strong recovery in the UK, bolstered by the easing of COVID-19 restrictions, and has acted like a headwind for the British pound.

Despite the support factor, the rise of the EUR / GBP cross remains limited amid the appearance of some sales around the common currency. A modest strength of the US dollar has been considered a key factor weighing on the euro, which has lost some additional ground after preliminary release of worse than expected German GDP for the first trimester.

In fact, the eurozone’s largest economy contracted 1.7% during the January-March period compared to an expected 1.5% drop and the growth of 0.3% registered in the previous quarter. In contrast, the eurozone economy contracted by 0.6% during the first three months of 2021, beating estimates that pointed to a drop of -0.8%.

On the other hand, The Eurozone Preliminary Inflation Report has shown that the headline CPI is forecast to increase by 1.6% YoY in April, compared to 1.3% the previous month. However, the underlying reading has shown no signs of rising inflationary pressure, which should do little to convince the ECB to change its current policy stance and thus it has failed to inspire the euro bulls.

Now it will be interesting to see if the EUR / GBP cross can capitalize on the positive move or continue its difficulties finding acceptance above the 0.8700 level. This makes it prudent to wait for a strong continuation buy above the 0.8715-20 resistance zone before positioning for any further bullish movement.

EUR / GBP technical levels