EUR/GBP sticks to intraday recovery gains around 0.8600, lacks bullish conviction

• EUR/GBP gains some positive traction on Friday, though lacks follow-through buying.
• Bets for another supersized 75 bps ECB rate hike underpin the Euro and offers support.
• The GBP consolidates its recent gains and does little to provide any meaningful impetus.

The EUR/GBP cross attracts some buying on Friday and reverses a major part of the overnight slide to a three-month low, levels just below mid-0.8500s. The cross sticks to its modest gains through the early European session and is currently placed near the daily top, just above the 0.8600 mark.

The shared currency draws some support from European Central Bank President Christine Lagarde's remarks earlier this Friday, which, in turn, acts as a tailwind for the EUR/GBP cross. Lagarde reiterated the need to ensure that inflation returns to its goal. This comes on the back of her comments earlier this week that the region’s inflation has not peaked and favours another supersized 75 bps rate hike in December.

That said, softer-than-expected Eurozone consumer inflation figures released on Wednesday might have cooled expectations for more aggressive policy tightening by the Fed and might cap the Euro. In fact, the flash estimate published by Eurostat showed the annualized Eurozone Harmonised Index of Consumer Prices (HICP) recorded its first drop since mid-2021 and decelerated to a 10.0% YoY rate in November.

This, in turn, could act as a headwind for the Euro. The high beta British Pound, on the other hand, remains well supported by a generally positive risk tone and the prevalent US Dollar selling bias. The combination of aforementioned factors might keep a lid on any meaningful recovery move for the EUR/GBP cross, at least for the time being, warranting some caution for aggressive bullish traders.

Even from a technical perspective, the overnight breakdown below the 0.8575-0.8570 horizontal support favours bearish traders. That said, the emergence of some buying in the vicinity of the very important 200-day SMA makes it prudent to wait for strong follow-through selling before positioning for a further depreciating move.

Technical levels to watch