EUR/GBP eases from monthly peak, 200-DMA around mid-08400s holds the key for bulls

• EUR/GBP climbed to the monthly peak on Monday, though struggled to capitalize on the move.
• Friday’s dismal UK macro data continued weighing on the British pound and extended support.
• Sustained USD buying undermined the shared currency and kept a lid on any meaningful upside.

The EUR/GBP cross retreated a few pips from the monthly peak touched during the mid-European session and was last seen trading with modest gains, around the 0.8425 region.

Following an early dip to sub-0.8400s, the EUR/GBP cross regained positive traction for the fifth successive day on Monday and built on last week's strong move up. The disappointing UK macro data released on Friday indicated that the domestic economy is under stress from the soaring cost of living. This, in turn, was seen as a key factor that continued weighing on the British pound and acted as a tailwind for spot prices.

On the other hand, hawkish remarks by some ECB policymakers contributed to the shared currency's relative outperformance against its British counterpart. It is worth recalling that ECB Vice President Luis de Guindos had said that a rate hike is possible in the second half of the year. Moreover, ECB Governing Council member Pierre Wunsch suggested a probable rate hike in July and also anticipated that rates could be positive as soon as this year.

Furthermore, Joachim Nagel, President of the Deutsche Bundesbank, noted that the ECB could raise interest rates at the start of the third quarter. ECB President Christine Lagarde, however, said that the central bank may need to cut its growth outlook further amid concerns about the fallout from Russia's invasion of Ukraine. This, along with sustained US dollar buying, held back the euro bulls from placing fresh bets and capped the EUR/GBP cross.

Even from a technical perspective, the intraday positive move faltered just ahead of a technically significant 200-day SMA, currently around mid-0.8400s, which should now act as a pivotal point. This makes it prudent to wait for sustained strength beyond the said barrier before positioning for any further near-term appreciating move amid absent relevant market moving economic releases.

Technical levels to watch