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  • EUR/GBP met with some fresh supply on Monday and turned lower for the third straight session.
  • A sudden pickup in demand for the British pound was seen as a key factor that exerted pressure.
  • Oversold conditions warrant some caution before positioning for any further depreciating move.

The EUR/GBP cross witnessed some selling during the early European session and dropped to fresh 13-month lows, around the 0.8515-10 region in the last hour.

The cross failed to capitalize on its attempted recovery move, instead met with some fresh supply near the 0.8560-65 region and turned lower for the third consecutive session on Monday. The British pound’s relative outperformance against its European counterpart could be attributed to a highly-successful vaccination distribution program and the diminishing possibility of further monetary policy easing by the Bank of England.

On the other hand, concerns about the economic fallout from the third wave of COVID-19 infections in Europe continued weighing on the shared currency. Investors seem worried that pandemic-related restrictions could derail the fragile Eurozone economic recovery amid the slow pace of vaccinations. This was seen as another factor that contributed to the EUR/GBP pair’s intraday slide to the lowest level since February 2018.

That said, the ongoing EU/UK vaccination spat might keep a lid on any runaway rally for the sterling. It is worth mentioning that the European Commission has reportedly threatened to ban exports of Oxford-AstraZeneca vaccines to countries that have higher vaccination rates, including Britain. This, along with the recent escalation of diplomatic tensions between the UK and China might help limit the downside for the EUR/GBP cross.

Even from a technical perspective, the daily RSI (14) remains closer to oversold territory and further warrants some caution before positioning for any further depreciating move. In the absence of any major market-moving economic releases, either from the UK or the Eurozone, the EUR/GBP cross could witness some short-covering move and allow bulls to make a fresh attempt towards reclaiming the 0.8600 round-figure mark.

Technical levels to watch