- EUR/GBP gains traction for the second straight session on Friday.
- Carry trade unwinding continues to boost the common currency.
- Hawkish BoE underpinned the sterling and seemed to cap gains.
The EUR/GBP cross jumped to fresh session tops in the last hour, with bulls now looking to extend the momentum further beyond the 0.8700 round-figure mark.
The cross built on the previous day’s intraday bounce from the 0.8620 region and gained some follow-through traction for the second consecutive session on Friday. The shared currency’s relative outperformance against its British counterpart could be attributed to some follow-through carry trade unwinding.
Bulls trying to seize back control
Given the negative implied yields in the Eurozone, the common currency had been a funding currency of choice. However, the coronavirus-led panic across the global equity markets forced investors to reverse out of the so-called carry trades and remained supportive of the bid tone surrounding the euro.
The British pound, however, has, so far, been able to resist the advance in the shared currency amid diminishing odds of a Bank of England interest rate cut and absent negative Brexit-related headlines. This might eventually turn out to be the only factor keeping a lid on any runaway rally for the cross.
It is worth recalling that the incoming BoE Governor Andrew Bailey, while testifying before the UK’s Treasury Committee on Wednesday, dampened prospects for an immediate policy easing and said that he would wait for more evidence before deciding on a move, rather than rushing to an emergency cut.
Hence, it will be prudent to wait for some strong follow-through buying before traders again start positioning for any further near-term appreciating move.
Technical levels to watch