• EUR/GBP gained strong positive traction on Tuesday and shot to over a two-week high.
• Weaker USD, hotter-than-expected flash Eurozone CPI benefitted the shared currency.
• Brexit uncertainties acted as a headwind for the British pound and remained supportive.

The EUR/GBP cross maintained its bid tone near the key 0.8500 psychological mark, or over two-week high and had a rather muted reaction to the flash Eurozone CPI report.

The cross regained positive traction on Tuesday and built on last week's strong recovery move from the 0.8380 support zone, or the lowest level since February 2020. The shared currency witnessed a fresh bout of a short-covering move amid the heavily offered tone surrounding the US dollar. This, in turn, was seen as a key factor that provided a goodish lift to the EUR/GBP cross.

The common currency was also underpinned by hotter-than-expected Eurozone consumer inflation figures for November. In fact, the headline CPI accelerated to a 4.9% YoY rate in November as against market expectations for a slide to 3.7% from the 4.1% rise reported in the previous month. Adding to this, the core reading also surpassed consensus estimates and surged past the European Central Bank's 2% target, arriving at a 2.6% YoY rate during the reported month.

On the other hand, persistent Brexit-related uncertainties further contributed to the British pound's relative underperformance against its European counterpart and remained supportive. The UK-EU impasse over the Northern Ireland Protocol, along with the worsening row over the post-Brexit fishing rights between France and Britain continued acting as a headwind for the sterling.

The combination of factors favours bullish traders and support prospects for additional gains. The positive outlook is reinforced by the fact that the EUR/GBP cross has now found acceptance above the 0.8500 mark. Hence, a subsequent move towards testing the next relevant hurdle, around the 0.8535-40 horizontal zone, remains a distinct possibility.

Technical levels to watch