EUR/GBP falls to fresh 2-1/2 month lows, farther below 0.8700 handle and bounces

   •  A more dovish ECB tilt prompts some fresh selling around the shared currency.
   •  Some GBP profit-taking seemed to extend support and help limit deeper losses.

As the ECB post-meeting presser got underway, the selling pressure surrounding the shared currency picked up the pace and dragged the EUR/GBP cross to fresh 2-1/2 month lows.

The cross did attempt a minor recovery during the early European session but was quickly sold into near the 0.8725 region following the disappointing release of flash Euro-zone PMI figures for January.

Meanwhile, the latest leg of a sudden fall over the past hour or so came in reaction to a more dovish shift by the ECB President Mario Draghi, saying that risks to Euro-zone growth outlook have moved to the downside.

Draghi was also noted saying that underlying inflation remains muted, which further collaborated towards denting the already weaker sentiment and dragged the cross to an intraday low level of 0.8682, the lowest since Nov. 14.

However, the ongoing profit-taking slide in the GBP/USD major, especially after this week's strong upsurge, seemed to lend some support and turned out to be a key factor that helped limit further downside, at least for the time being.

Technical levels to watch

Immediate support is pegged near the 0.8665 level, which if broken will mark a fresh near-term bearish breakdown and pave the way for an extension of this month's sharp rejection slide from the 0.9100 handle. On the flip side, the 0.8725-30 region might continue to cap any attempted recovery and is followed by the 0.8760 supply zone, above which the cross is likely to aim towards reclaiming the 0.8800 handle.