- EUR / GBP is struggling to capitalize on its modest initial gains at the highest level since early June.
- Brexit issues and Covid-19 nervousness continue to weigh on the GBP and offer support to the pair.
- A stronger dollar keeps euro bulls on the defensive and limits gains, at least for now.
The crossing EUR/GBP has rapidly retreated nearly 20 pips from the highest since early June reached earlier in the session, trading in neutral territory around the region 0.8625-30.
The cross has built on its recent strong rebound from near the key psychological level of 0.8500 and has gained some continuation traction during the first half of Tuesday’s trading action. This has marked the fourth day of positive movement in the previous five and it is due to the poor relative performance of the British pound.
News over the weekend suggested that the The UK will threaten this week to deviate from the Northern Ireland Protocol of the Brexit deal. Sources indicated that David Frost, the British minister leading the Brexit negotiations, is preparing to announce a significant change to the protocol that could have far-reaching consequences for the relationship with the EU.
This, along with the Concerns about the spread of the Delta variant of the coronavirus highly contagious, it has overshadowed the UK’s decision to lift COVID-19 restrictions on July 19. In recent events, UK Health Minister Sajid Javid has tested positive for COVID-19 and forced the Prime Minister Boris Johnson and Finance Minister Rishi Sunak to self-quarantine.
The combination of factors has acted as a headwind for the British pound, which has turned out to be a key factor that has continued to push the EUR / GBP cross higher on Tuesday. That said, the bulls have struggled to capitalize on momentum and have faced rejection just before 0.8650, which should now act as a key point and help determine the next directional move.
The strong bullish sentiment prevailing around the US dollar has kept euro bulls on the defensive. This, in turn, has limited any strong gains for the EUR / GBP cross, at least for the moment. In the absence of big economic releases, it will be wise to wait for some continuation buying past the aforementioned hurdle before opening new bullish positions.