EUR/GBP remains depressed below 0.8400 mark, downside seems cushioned ahead of ECB

The EUR/GBP cross remained on the defensive through the early European session and was last seen trading near the daily low, just a few pips below the 0.8400 mark.

The cross edged lower on Thursday and moved away from the four-week high touched in the previous day, stalling this week's massive rally from the 0.8200 mark, or the lowest level since June 2016. The downtick lacked any obvious catalyst and could be solely attributed to some repositioning trade ahead of the key European Central Bank (ECB) meeting.

The downside, however, seemed limited amid reviving hopes for a diplomatic resolution to end the war in Ukraine. Given its geographical proximity, the optimism helped ease concerns that the European economy would suffer the most from the spillover effects of the Ukraine crisis. This should act as a tailwind for the shared currency and the EUR/GBP cross.

On the other hand, the emergence of some US dollar dip-buying weighed on the British pound. This might further contribute to limiting any meaningful corrective slide for the EUR/GBP cross. Nevertheless, the pair, for now, seems to have snapped four successive days of the winning streak as investors await the latest ECB policy decision for a fresh impetus.

The recent geopolitical developments might do little to force the ECB to change its hawkish stance amid the record-high consumer inflation. This, in turn, suggests that the path of least resistance for the EUR/GBP cross remains to the upside. That said, the risk of a further escalation of tensions between Russia and the West warrants some caution for bulls.

Technical levels to watch