EUR/GBP retreats from yearly tops, back below 0.88 handle post UK data

The EUR/GBP cross trimmed some of its strong gains to fresh yearly tops beyond mid-0.8800s and has now retreated back below the 0.8800 handle after mixed UK macro data.

Spot extended the retracement move from multi-month tops and dropped to 0.8780 level after UK trade deficit contracted more-than-expected to £10.38 billion in April, from previous month's £12.05 billion and £12.00 billion expected. 

Positive trade balance data, however, seems to have been negated by dismal recovery in the UK manufacturing sector, with both manufacturing production and industrial production recorded a tepid growth of 0.2% during April. The readings were much lower-than-expected, but did little to attract any fresh selling pressure around the British Pound.

Despite of the tepid pull-back, the cross held on to its strong gains amid political turmoil stemming out of the UK vote, where the ruling Conservative Party lost its parliamentary majority. 

With the UK economic data out of the way, the UK political developments would continue to drive sentiment surrounding the British Pound and remain an exclusive driver of the pair's movement through the final trading day of the week.

Technical levels to watch

A follow through retracement below 0.8760-50 region might prompt additional profit taking slide back towards the 0.8700 handle, below which the cross could be headed back towards mid-0.8600s.

On the upside, sustained momentum back above the 0.8800 handle might continue to face some fresh supply near mid-0.880s, which if cleared should continue lifting the cross further towards reclaiming the 0.8900 handle.