EUR/GBP slides to fresh one-month lows, around 0.8575 region

The EUR/GBP cross edged lower through the first half of the European session and dropped to fresh one-month-lows, around the 0.8575 region in the last hour.

Having faced rejection near the 0.8600 mark, the cross met with some fresh supply on Wednesday and is now looking to add to this week's heavy losses led by the outcome of the Scottish election. Nicola Sturgeon’s Scottish National Party (SNP) fell short of securing an outright majority by the narrowest possible margin and pushed back the risk of an imminent independence referendum.

This, along with the optimism over the UK economic recovery from the pandemic acted as a tailwind for the British pound. The upbeat outlook was reinforced by Wednesday's UK macro releases, which showed that the economy expanded by 2.1% MoM in March. This was accompanied by an upward revision of the previous month's reading and stronger Manufacturing/Industrial Production figures.

On the other hand, the shared currency was weighed down by a modest US dollar rebound from multi-week lows. This was seen as another factor that exerted some downward pressure on the EUR/GBP cross. The euro bulls largely shrugged off and seemed unimpressed by the fact that the European Commission raises its Eurozone GDP growth forecasts for 2021 and 2022 to 4.3% and 4.4%, respectively.

Meanwhile, the latest leg down over the past hour or so followed the release of the Eurozone March industrial production data, which indicated that the recovery in the manufacturing sector is still in the doldrums. In fact, the industrial output in the region rose by a modest 0.1% MoM in March as against consensus estimates pointing to a robust 0.7% growth.

The EUR/GBP cross has now erased over 50% of its strong recovery gains posted in April. This, along with sustained weakness below the 0.8600 mark, might have shifted the near-term bias back in favour of bearish traders. Hence, a subsequent slide back towards the 0.8545 intermediate support, en-route the key 0.8500 mark, looks a distinct possibility.

Technical levels to watch