Faces rejection near 0.8700 level, upside potential remains intact

• A modest pickup in demand for the British pound triggers some selling around EUR / GBP on Monday.
• The technical setup appears tilted in favor of the bulls and supports the prospects for additional earnings.
• Drops towards the 0.8600 level could still be seen as a buying opportunity and remain limited.

The EUR / GBP cross has struggled to capitalize on its initial rally and has faced rejection near the 0.8700 level for the second day in a row on Monday. The British pound witnessed a modest short covering rebound at the start of the European session on Monday and dragged the EUR / GBP cross towards the 0.8650 region.

Looking at the technical picture, the EUR / GBP cross last week confirmed a bullish breakout of a descending wedge pattern. A subsequent move past the 23.6% Fib retracement of the 0.9218 to 0.8472 dip supports the prospects for an extension of the recent rally from lows of more than a year.

The constructive setup is bolstered by the fact that the technical indicators have just started to move into bullish territory on the daily chart and have moved away from the overbought zone on the 4-hour chart. Therefore, any significant pullback could be seen as a buying opportunity and remain limited.

From current levels, immediate support is at the 0.8630-25 region. Further down awaits the round level of 0.8600. This latest level coincides with the breaking point of the descending wedge and should now act as a solid foundation for the EUR / GBP cross amid the absence of relevant economic releases.

On the other hand, the 0.8700 area now appears to have emerged as a strong immediate resistance, ahead of the 38.2% Fibonacci around the 0.8740-50 resistance zone. A sustained move above this region should allow the EUR / GBP cross to aim to regain the 0.8800 level for the first time since early February.

EUR / GBP daily chart

EUR / GBP technical levels