EUR/GBP stuck in a range around mid-0.8600s ahead of German CPI, BoE’s Bailey

The EUR/GBP cross struggles to capitalize on a two-day-old recovery move from the 0.8575-0.8570 support zone and oscillates in a narrow trading band on Tuesday. The cross, however, manages to hold above the 100-day Simple Moving Average (SMA) and trades around mid-0.8600s during the early European session.

The downside for the EUR/GBP cross remains cushioned in the wake of more hawkish comments by European Central Bank (ECB) policymakers recently, which point to a series of interest rate hikes ahead. In fact, ECB President Christine Lagarde said on Monday that Eurozone inflation has not peaked yet. Adding to this, Dutch central bank chief Klaas Knot noted that the risk of doing too little is clearly more pronounced than doing too much. This, along with the emergence of fresh US Dollar selling, continues to underpin the shared currency and offers support to the cross.

Adding to this, a bleak outlook for the UK economy contributes to the British Pound's underperformance and acts as a tailwind for the EUR/GBP cross. This, however, is offset by expectations that the Bank of England (BoE) will continue to raise borrowing costs to combat stubbornly high inflation. The mixed fundamental backdrop, in turn, is holding back traders from placing aggressive directional bets and capping the upside for the EUR/GBP cross. Market participants also seem reluctant ahead of the flash German CPI figures and BoE Governor Andrew Bailey's scheduled speech on Tuesday.

From a technical perspective, repeated failures to find bearish acceptance below the 100 DMA warrants some caution for bearish traders. That said, the EUR/GBP pair's inability to gain any meaningful traction makes it prudent to wait for strong follow-through buying before confirming a near-term bottom and positioning for further gains.

Technical levels to watch