EUR/GBP hits fresh one-week lows under 0.8600

• The pound is having the best day in weeks versus the euro.
• EUR/GBP drops back under the 20-day moving average.

After a short-lived rebound to 0.8670, the EUR/GBP pair resumed the decline and broke under 0.8600 for the first time since April 7. It bottomed at 0.8587, and as of writing, it is hovering around 0.8600, around the 20-day moving average.

The rally of GBP/USD triggered the decline in the cross. With cable testing 1.4000, a break higher could push EUR/GBP further to the downside. The strength of the pound across the board is not driven by any particular catalyst.

Expectations about the economic recovery and news about the pace of vaccination will likely be watched closely on the day ahead. In the UK on Wednesday, the employment report is due. On Thursday, the European Central Bank (ECB) will have its policy meeting, with no change expected.

Recovery ends for the euro

From a technical perspective, the EUR/GBP has broken a consolation range after being rejected from above 0.8700. The pair is correcting lower the rally that started from multi-month lows at 0.8470 (April 5 low). The short-term outlook favors the downside; a consolidation below 0.8600 is needed for the pound to keep the momentum positive.

A recovery above 0.8640 would alleviate the bearish pressure. Above the next resistance stands at 0.8665. The key level on the upside is 0.8700, with a daily close clearly above, opening the doors to more gains.

Technical levels