EUR/GBP fails to rally beyond 0.8700 despite upbeat Eurozone data

• The Euro retreats from the 0.8700 area despite positive macroeconomic data.
• German economic sentiment and Eurozone Industrial Production have shown larger-than-expected improvements.
• EUR/GBP is showing signs of a potential bearish correction.

The Euro is trading lower against the Pound on Tuesday. The strong German economic sentiment and upbeat Eurozone Industrial Production figures have failed to push the pair above the 0.8700 level. However, price action remains at its highest levels in the last three months.

The broader trend remains positive, as the common currency continues to show a sequence of higher highs and higher lows, appreciating 3.8% from May’s lows. Technical indicators, however, have reached oversold levels, and the 4-hour RSI exhibits a bearish divergence, which may signal a potential bearish reversal.

Data from the ZEW Economic Research Institute, released on Tuesday, suggests that investors’ sentiment about the economic outlook has improved to 52.7 from 47.5 in May, well above market expectations of a 50.0 reading.

Likewise, their opinion about the current economic situation has improved to -59.5, from -72.0 in the previous month, also beating the -65.5 reading anticipated by the market consensus.

Eurozone’s Industrial Production has also posted a positive surprise. Factory activity accelerated by 1.7% in May, beating expectations of a 0.6% growth, while April's reading was revised higher to a 2.2% contraction from the previously estimated 2.4% fall.