EUR/GBP clings to gains near 0.8570 area post-German ZEW, bulls eye YTD peak

• EUR/GBP gained some positive traction on Tuesday and inched back closer to the YTD peak.
• The BoE’s gloomy economic outlook continued weighing on sterling and acted as a tailwind.
• Concerns about looming recession undermined the euro and capped any meaningful upside.

The EUR/GBP cross held on to its modest intraday gains, around the 0.8570 region through the first half of the European session and had a rather muted reaction to the German data.

The cross attracted some dip-buying near the 0.8545 zone on Tuesday and has now moved well within the striking distance of the YTD peak touched last week. The Bank of England's warning last week, saying that the economy was at the risk of a recession, suggested that the current rate hike cycle could be nearing a pause. This was seen as a key factor behind the British pound's relative outperformance and acted as a tailwind for the EUR/GBP cross.

That said, concerns that the European economy will suffer the most from the Ukraine crisis held back bullish traders from placing aggressive bets around the shared currency. On the economic data front, the German ZEW Economic Sentiment Index improved from -41.0 in April to -34.3 for the current month, beating estimates of -42.0 by a wide margin. This, however, did little to offset worries about the looming recession or provide any impetus to the EUR/GBP cross.

From a technical perspective, the post-BoE strong move up beyond the very important 200-day SMA and a descending trend-line extending from April 2021 support prospects for additional gains. Hence, some follow-through strength, towards reclaiming the 0.8600 mark for the first time since October 2021, still looks like a distinct possibility. That said, absent relevant market-moving economic releases warrant some caution before positioning for any further gains.

Technical levels to watch