EUR/GBP retreats further from two-month tops, downside seems limited
- EUR/GBP witnessed some selling on Wednesday and snapped three days of the winning streak.
- Stronger USD was seen as a key factor behind the shared currency’s relative underperformance.
- Brexit woes, COVID-19 jitters might act as a headwind for the British pound and help limit losses.
The EUR/GBP cross retreated nearly 30 pips from the daily swing highs and dropped to fresh session lows, around the 0.8625 region in the last hour.
The cross struggled to capitalize on its modest intraday gains, instead met with some fresh supply near the 0.8655-60 region and retreated further from two-month tops touched in the previous session. Sustained US dollar buying was seen as a key factor behind the shared currency's underperformance, which, in turn, exerted some pressure on the EUR/GBP cross.
The downside, however, remains cushioned amid the impasse over the Northern Ireland Protocol of the Brexit deal. British Prime Minister Boris Johnson told parliament on Wednesday that there are practical steps to solve the issues. Adding to this, the UK's chief Brexit negotiator, David Frost, said that we want a new path and negotiate a new balance with the EU.
This, along with the resurgence of the COVID-19 infections in the UK, might continue to act as a headwind for the British pound and help limit any deeper losses, at least for the time being. Moreover, investors might also refrain from placing any aggressive bets, rather prefer to wait on the sidelines ahead of the European Central Bank meeting on Thursday.
There isn't any major market-moving economic data due for release on Wednesday, either from the Eurozone or the UK. This further makes it prudent to wait for some strong follow-through selling before confirming that the EUR/GBP cross has topped out in the near term and positioning for any meaningful corrective slide.
Technical levels to watch