EUR/GBP clings to modest gains around 0.8600 mark, lacks follow-through

The EUR/GBP cross edged higher through the first half of the European session and climbed to three-day tops, around the 0.8610-15 region in the last hour.

The cross regained some positive traction on Tuesday and is now looking to build on its bounce from the 0.8565-60 support zone, or over three-week lows touched last week. The British pound's relative underperformance comes amid doubts that the spread of the so-called Delta variant could disrupt the UK government’s reopening plans on June 21.

Apart from this, indications that Britain's relationship with the European Union has been souring further acted as a headwind for the sterling. In a further escalation of a dispute over the Northern Ireland protocol, the EU reportedly is considering tougher retaliatory measures if the UK government fails to implement its post-Brexit obligations.

Despite the supporting factor, the upside remains capped, at least for now, amid the emergence of some selling around the shared currency. A goodish pickup in the US dollar demand, along with mostly downbeat Eurozone macro data – German Industrial Production and ZEW Economic Sentiment – exerted some downward pressure on the euro.

Moreover, investors might also be reluctant to place any aggressive bets, rather prefer to wait on the sidelines ahead of the European Central Bank (ECB) meeting on Thursday. This further makes it prudent to wait for some strong follow-through buying before traders start positioning for any further near-term appreciating move for the EUR/GBP cross.

Technical levels to watch