EUR/GBP recovers further from 21-month low, retakes 0.8400 mark

The EUR/GBP cross built on its intraday recovery move from YTD lows and climbed back above the 0.8400 mark during the mid-European session.

The cross staged a goodish rebound from the 0.8385-80 area, or the lowest level since February 2020 and has now recovered a major part of the previous day's heavy losses. This marked the first day of a positive move in the previous five and could be solely attributed to short-covering following the recent slump of nearly 200 pips from the very important 200-day SMA.

The possibility of the UK government suspending a part of the Brexit settlement over Northern Ireland, along with the impasse over the post-Brexit fishing rights acted as a headwind for the sterling. Apart from this, the ongoing US dollar profit-taking slide benefitted the shared currency, which further contributed to the EUR/GBP pair's intraday recovery move.

That said, the divergent bank of England and the European Central Bank monetary policy outlooks could hold back bullish traders from placing aggressive bets. This week's upbeat UK employment details and hotter-than-expected CPI print reassured an imminent BoE rate hike in December. Conversely, the ECB has been pushing back on market bets for tighter policy.

This, in turn, warrants some caution before confirming that the EUR/GBP cross has bottomed out in the near term and positioning for any further appreciating move. Hence, any subsequent move up is more likely to meet with a fresh supply and run out of the steam near the 0.8420 region, or the previous YTD daily closing lows set on October 26.

Technical levels to watch