EUR/GBP retreats from weekly highs toward 0.8800

• Euro supported by ECB monetary policy expectations.
• Pound attempts to recover ground.
• EUR/GBP with bullish bias, near strong barriers.

The EUR/GBP is trading flat, hovering around 0.8815, after rising for three consecutive days. The cross peaked at 0.8851, the highest level in a week before pulling back.

The Euro continues to receive support from European Central Bank’s officials who talk about the need to continue rising interest rates significantly. The latest round of economic data favors that perspective. The Eurozone PMIs surpassed expectations.

On Wednesday, the IFO business climate was released. For January the headline came in slightly below market consensus at 90.2 while the expectations index came in at 86.4. “While the outlook has brightened somewhat, the IFO readings suggest that this is starting to top out and so upside economic risks are likely limited, at least for now”, mentioned analysts at Brown Brother Harriman.

The cloudy outlook for the UK economy still weighs on the Pound. Still, the Bank of England is still seen raising rates at their next meeting.

At the 20-day SMA

The EUR/GBP is hovering at a critical area, around 0.8810/15 which contains the 20-day Simple Moving Average. If it manages to consolidate above, the Euro could gain momentum toward the next resistance at 0.8855/60, the last protection for another test of 0.8895/0.8900.

On the flip side, a daily close below 0.8790 should be a positive development for the Pound suggesting a deeper slide probably to the next support around 0.8740.

EUR/GBP daily chart