EUR/GBP slips below 0.8800 mark for the first time since May 2020
- EUR/GBP witnessed follow-through selling for the second straight session on Tuesday.
- A delay in the rollout of COVID-19 vaccines continued undermining the common currency.
- Diminishing odds of BoE rate cut benefitted the pound and contributed to the selling bias.
The EUR/GBP cross dropped to near nine-month lows in the last hour, with bears now looking to extend the downward trajectory further below the 0.8800 mark.
Following a brief consolidation through the first half of the trading action on Tuesday, the cross met with some fresh supply during the early European session and was pressured by weaker euro. The shared currency's relative underperformance against its British pound could be attributed to concerns about the slow rollout of COVID-19 vaccines in Europe.
On the economic data front, the prelim Eurozone GDP report showed that the economy contracted by 0.7% during the last quarter of 2020. The reading was less worse than the 0.9% fall anticipated but marked a sharp slowdown from the 12.5% growth (revised down from 12.7% reported previously) recorded in the previous quarter and did little to impress bulls.
On the other hand, the British pound benefitted from the emergence of some fresh selling around the US dollar and diminishing odds for any BoE rate cut in 2021. In fact, UK money markets indicate that investors have pushed back bets for 10bps interest rate cut by the BoE to 2022 vs the previous expectations for such a move in December.
Hence, the key focus will remain on the upcoming BoE monetary policy meeting on Thursday. Apart from the policy decision, negative rates talks will be the key focal point amid concerns about the economic fallout from the third nationwide lockdown in the UK. This, in turn, will help investors to determine the next leg of a directional move for the EUR/GBP cross.
From a technical perspective, sustained weakness below the 0.8800 mark will be seen as a fresh trigger for bearish traders and set the stage for a further near-term depreciating move. The EUR/GBP cross might then accelerate the fall to the 0.8765-60 intermediate support before eventually sliding to test sub-0.8700 levels.
Technical levels to watch