EUR/GBP slides to one-week lows, further below mid-0.8500s

The emergence of heavy selling around the shared currency dragged the EUR/GBP cross to one-week lows, around the 0.8530-25 region during the first half of the European session.

Following an early uptick to the 0.8575-80 region, the EUR/GBP cross witnessed aggressive selling on Monday and extended last week's retracement slide from the 0.8610-15 region, or monthly tops. The centre-left Social Democrats (SPD) registered a narrow victory over incumbent Chancellor Angela Merkel’s party in a closely contested German election on Sunday. The tightness of the result means that negotiations on coalition-building are likely to be complex and time-consuming, which, in turn, took its toll on the common currency.

Apart from this, a goodish pickup in demand for the British pound turned out to be another factor that contributed to the heavily offered tone surrounding the EUR/GBP cross. That said, increasing signs of the fuel crisis in the United Kingdom might hold the GBP bulls from placing aggressive bets. In fact, the Association of petroleum retailers has said that 50-90% of its members reported having run out of fuel. Apart from this, a goodish pickup in demand for the US dollar might further collaborate to cap gains for the sterling and lend some support to the cross.

Hence, any subsequent slide is more likely to find decent support and remain limited near the key 0.8500 psychological mark amid absent relevant market moving economic releases. Hence, it will be prudent to wait for a sustained break below the mentioned handle before positioning for any further depreciating move. Market participants now look forward to ECB President Christine Lagarde's speech for a fresh impetus. Later during the US session, comments by the Bank of England Governor Andrew Bailey might influence the GBP and also produce some short-term trading opportunities around the EUR/GBP cross.

Technical levels to watch