EUR/GBP extends the post-ECB recovery from two-year low, jumps closer to mid-0.8400s

• EUR/GBP gained strong traction for the second successive day and shot to a multi-week high.
• The euro capitalized on the hawkish ECB-inspired gains and remained supportive of the move.
• The fundamental backdrop favours bulls and supports prospects for additional near-term gains.

The EUR/GBP cross continued scaling higher through the early European session and shot to a five-week high, around the 0.8440 region in the last hour.

The cross built on the previous day's post-ECB strong recovery move from sub-0.8300 levels, or a fresh two-year low and gained traction for the second successive day on Friday. The ECB President Christine Lagarde acknowledged mounting inflation risks and did not repeat the previous guidance that a rate hike this year was extremely unlikely. This, in turn, was seen as a key factor behind the shared currency's relative outperformance and prompted some follow-through short-covering around the EUR/GBP cross.

On the other hand, the British pound, so far, has failed to capitalize on more hawkish Bank of England policy decision-inspired gains and consolidated in range on the last day of the week. This was seen as another factor that provided an additional boost to the EUR/GBP cross. It is worth recalling that the BoE, as was widely expected, raised the benchmark interest rate by 25 bps. The vote distribution, however, showed that four out of nine MPC members backed a more aggressive 50 bps increase in borrowing costs.

Nevertheless, the fundamental backdrop seems tilted in favour of bullish traders and supports prospects for a further near-term appreciating move. Market participants now look forward to the release of the UK Construction PMI and the Eurozone Retail Sales for a fresh impetus. Later during the early North American session, the US NFP report might infuse some volatility in the markets and produce some trading opportunities around the EUR/GBP cross.

Technical levels to watch