EUR/GBP holds comfortably above 0.8300, upside potential seems limited amid Ukraine crisis

• EUR/GBP gained traction for the second straight day and build on the overnight recovery from the multi-year low.
• EU bond-sale plan, encouraging macro data underpinned the euro and remained supportive of the positive move.
• Stagflation fears held back the euro bulls from placing aggressive bets and capped any further gains for the cross.

The EUR/GBP cross maintained its bid tone through the mid-European session and was last seen hovering near the top of its intraday trading range, around the 0.8320 region.

The cross built on the overnight strong recovery move from the 0.8200 mark, or the lowest level since June 2016 and gained some follow-through traction for the second successive day on Tuesday. Reports indicated that the European Union (EU) may consider massive joint bond sales to finance energy and defence spending to cope with the fallout from the Russia-Ukraine war. This, along with encouraging macro data, turned out to be a key factor behind the shared currency's relative outperformance against its British counterpart.

The Eurostat confirmed its earlier estimates and reported that the region's economy expanded by 0.3% on a quarterly basis and by a 4.6% annual rate during the October-December period. Adding to this, German industrial production surpassed expectations and increased by 2.7% MoM in January despite supply-chain constraints. The previous month's reading was also revised higher and showed a 1.1% rise in the total industrial output as compared to the 0.3% decline estimated. This, along with modest US dollar pullback, benefitted the euro.

That said, worries about the worsening situation in Ukraine held back bulls from placing aggressive bets and kept a lid on any further gains for the EUR/GBP cross. Given its geographical proximity, the European economy would suffer the most from the spillover effects of the Ukraine crisis. Moreover, Russia's invasion of Ukraine also seems to have derailed the European Central Bank's plans to dial back stimulus. Hence, the market focus will remain glued to fresh developments surrounding the Russia-Ukraine saga and the ECB meeting on Thursday.

In the meantime, expectations that the Bank of England (BoE) would go ahead with hiking rates at its March meeting could act as a tailwind for sterling. This further warrants some caution before confirming that the EUR/GBP cross has bottomed out and positioning for any further near-term appreciating move.

Technical levels to watch