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  • EUR/GBP drifted into the negative territory for the third consecutive session on Thursday.
  • A sudden pickup in demand for the British pound was seen as a key factor exerting pressure.
  • Oversold conditions warrant some caution before positioning for further depreciating move.

The EUR/GBP cross dropped to over one-year lows during the early North American session, with bears now looking to extend the momentum further below the key 0.8500 psychological mark.

The cross struggled to capitalize on its modest intraday recovery, instead met with some fresh supply near the 0.8530-35 region and turned lower for the third consecutive session on Thursday. The British pound’s relative outperformance against its European counterpart could be attributed to a highly successful vaccination distribution program and the gradual reopening of the UK economy.

Apart from this, concerns about the economic fallout from the third wave of COVID-19 infections in Europe undermined the shared currency. This was seen as another factor that contributed to the EUR/GBP pair’s slide to the lowest level since February 2020. Investors remain worried that pandemic-related restrictions could derail the fragile Eurozone economic recovery amid the slow pace of vaccinations.

That said, a weaker tone surrounding the US dollar extended some support to the euro and might help limit the downside for the EUR/GBP cross. Even from a technical perspective, the daily RSI (14) is pointing to slightly oversold conditions and warrant some caution before positioning for any further depreciating move. Conversely, the set-up supports prospects for some near-term short-covering bounce.

Technical levels to watch