EUR/GBP flirts with two day lows, holds above mid-0.8500s

The EUR/GBP cross maintained its offered tone through the first half of the European session and dropped to two-day lows, around the 0.8565 region in the last hour.

The cross witnessed some selling for the second consecutive session on Monday and extended the previous week's retracement slide from levels beyond the 0.8600 mark, or over two-week tops. The British pound's relative outperformance could be attributed to the optimism over the UK government's plan for the final step of easing COVID-19 restrictions.

In fact, UK Prime Minister Boris Johnson is preparing to lift most restrictions in England on July 19. The UK government has said that Johnson will outline the roadmap out of lockdown later this Monday. This, along with an upward revision of the UK Services PMI, acted as a tailwind for the sterling and exerted some downward pressure on the EUR/GBP cross.

On the other hand, the shared currency benefitted from a subdued US dollar price action and seemed rather unaffected by softer Eurozone Sentix Investor Confidence. This, in turn, seemed to be the only factor that extended some support to the EUR/GBP cross and might help limit any deeper losses, warranting some caution before positioning for any further decline.

From a technical perspective, repeated failures near a two-month-old descending trend-line favour bearish traders and supports prospects for an extension of the ongoing depreciating move. Some follow-through selling below the 0.8565-60 region will reaffirm the negative outlook and turn the EUR/GBP cross vulnerable to challenge the key 0.8500 psychological mark.

Technical levels to watch