EUR / GBP remains depressed near session lows, around the 0.8535-30 region

• EUR / GBP was down on Tuesday and extended the overnight retracement from the week-long highs.
• The improvement in the COVID-19 situation in the UK sustained the British pound and put pressure on it.
• A weaker USD provided a modest boost to the euro and helped limit any further losses for the cross.

The EUR / GBP cross maintained its offered tone during the mid-European session and was last seen trading around the 0.8535 region, just a few pips above the daily lows.

The cross witnessed some selling on Tuesday and fell further from the week-long highs around the 0.8555-60 region touched the previous day. Sterling’s outperformance could be attributed to optimism about the downward trend of new COVID-19 cases in the UK. Apart from this, the European Union’s decision to suspend legal proceedings against the United Kingdom over the dispute over the Northern Ireland protocol also acted as a tailwind for the British pound.

Meanwhile, evidence of a stronger economic recovery in the UK appeared to have now fueled speculation that the Bank of England (BoE) could be among the first major central banks to begin the process of untying its economy from stimulus support. . This was also seen as another factor underpinning the British pound. That said, a modest pickup in demand for the shared currency helped drive deeper losses for the EUR / GBP cross, warranting some caution for aggressive bearish traders.

Investors now appear to be convinced that the Fed will wait a longer period before slowing down its massive monetary support. This, coupled with risk appetite in the markets, weighed on the safe-haven US dollar and extended some support to the euro. This makes it prudent to wait for a strong selling follow-up before positioning for any further decline in the EUR / GBP cross and confirming that the recent bounce from the nearly four-month lows has been exhausted.

Technical levels