EUR/GBP rebounds from 100-DMA support, UK CPI in focus

   •  Short-covering helps stage a goodish recovery from 1-1/2 month lows.
   •  Brexit optimism might continue to underpin GBP and cap any runaway rally.
   •  Today’s key focus will be on the UK inflation figures and informal EU Brexit summit.

After an initial dip to 0.8865 area, or 1-1/2 month lows, the EUR/GBP cross staged a modest rebound but remained below the 0.8900 handle ahead of the UK macro data. 

The cross stalled overnight sharp retracement slide from levels just above the 0.8900 handle and managed to find decent support near 100-day SMA. The uptick lacked any obvious fundamental catalyst and could be attributed to some short-covering ahead of today's key UK inflation figures. 

The headline CPI is expected to tick lower to 2.4% y/y from 2.5% previous. Any positive surprise would be enough to trigger a fresh leg of up-move for the British Pound and continue exerting downward pressure on the cross. 

Meanwhile, growing optimism over a possible EU-UK deal to avoid a hard Brexit should help limit any immediate sharp downside for the British Pound and turn out to be one of the key factors keeping a lid on any runaway rally. 

Hence, the key focus will remain on the upcoming informal EU summit in Salzburg on Wednesday and Thursday, which might now play a key role in determining the next leg of a directional move for the Sterling.

Technical levels to watch

Immediate resistance is pegged near the 0.8900-0.8910 region, above which the momentum could further get extended towards 0.8935 supply zone. On the flip side, the 0.8865 area (100-DMA) might continue to protect the immediate downside and is followed by the very important 200-day SMA support near the 0.8835 region.