EUR/GBP holds steady above 0.8700 mark, 200-day SMA might continue to cap gains

• EUR/GBP reverses an intraday dip to the 0.8700 mark, albeit lacks follow-through buying.
• The BoE’s less hawkish outlook undermines the GBP and acts as a tailwind for the cross.
• The mixed comments by ECB policymakers warrant caution for aggressive bullish traders.

The EUR/GBP cross attracts some buying following a modest gap down opening on Monday, albeit struggles to capitalize on the uptick. Spot prices, meanwhile, remain well within Friday's broader trading range and currently trade just above the 0.8700 mark during the early European session.

The British Pound continues with its relative underperformance in the wake of the Bank of England's (BoE) less hawkish outlook and lends some support to the EUR/GBP cross. It is worth recalling that the BoE Governor Andrew Bailey, speaking at the post-meeting press conference last week, noted that there are good reasons to think that CPI will fall sharply. Even the mostly in-line release of the UK GDP report for the first quarter of 2023 and the upbeat UK Manufacturing/Industrial Production figures for March released on Friday failed to impress the GBP bulls.

EUR/GBP cross, however, struggles to gain any meaningful traction and remains below the technically significant 200-day Simple Moving Average (SMA). The shared currency is undermined by the recent mixed signals from the European Central Bank (ECB) officials over the future rate-hike path. In fact, the ECB Governing Council member Yannis Stournaras told a Greek newspaper on Wednesday that we are close to the end of the tightening cycle and as things stand now, we can say that interest rate hikes will be over in 2023.

This, along with looming recession risks, continues to weigh on the shared currency and contributes to capping the upside for the EUR/GBP cross. In the absence of any relevant market-moving economic data, either from the Eurozone or the UK, the fundamental backdrop warrants some caution for aggressive bullish traders. Hence, it will be prudent to wait for strong follow-through buying before confirming that the cross has formed a bottom and positioning for an extension of last week's bounce from the YTD low, around the 0.8660 region.

Technical levels to watch