EUR/GBP hangs near one-month lows, around 0.8700 handle

   “¢   Italian political uncertainty kept exerting downward pressure on Tuesday.
   “¢   Bearish pressure seems to have eased after 5-Star leader Maio’s comments.

The EUR/GBP cross extended overnight rejection slide from the 0.8800 neighborhood and remained under some selling pressure for the second consecutive session on Tuesday.

Growing concerns about political uncertainty in Italy – the euro zone’s third biggest economy kept exerting downward pressure on the shared currency. The coupled with rising Italian/German 10-year bond yield spread further impacted the EUR in a negative manner and dragged the cross momentarily below the 0.8700 handle during the European session.  

The bearish bias eased a bit, at least for the time being, after the Five Star leader Luigi Di Maio said that he never sought Italian exit from the European Union and helped the cross to rebound around 15-20 pips from session lows.

Despite a modest rebound, the cross, so far, has held with a negative bias and was being weighed down by a goodish rebound in the British Pound. In absence of any major market moving economic releases, the cross seems unlikely to register any meaningful recovery and possibly enter a bearish consolidation phase.

Technical levels to watch

A follow-through selling below the 0.8700 handle is likely to accelerate the fall towards 0.8680 horizontal level before the cross eventually drops to test its next major support near the 0.8635-30 region.

On the upside, recovery beyond 0.8725 level could get extended towards 0.8755 level, above which a fresh bout of short-covering could lift the cross further towards the 0.8790-0.8800 supply zone.