EUR / GBP bounces away from lows, finds some support near 0.8600

• The EUR / GBP witnessed a trend reversal on Thursday and fell more than 40 pips from the one-week highs.
• The renewed selling bias in the USD caused a short hedging move around the GBP and put some pressure.
• The latest monetary policy decision by the ECB failed to impress the bulls or provide support for the crossover.

A strong rebound in demand for the British pound dragged the cross EUR/GBP to new daily lows, although it lacked subsequent sales below the 0.8600 round mark.

The cross struggled to capitalize on its positive intraday move to week-long highs, instead witnessing a dramatic reversal from the 0.8640-45 region and has now erased a significant portion of the overnight gains. As investors took in recent Brexit developments, the renewed selling bias of the US dollar triggered an aggressive short-hedging move around the British pound. This, in turn, was seen as a key factor that put some downward pressure on the EUR / GBP cross.

On the other hand, euro bulls were a bit disappointed after the European Central Bank (ECB) steered clear of any talk about the downsizing at the last policy meeting on Thursday. At the press conference after the meeting, ECB President Christine Lagarde reiterated that risks remain broadly balanced. The ECB also released a new round of staff projections and raised its forecasts for inflation and GDP growth, although it did little to provide a boost to the shared currency.

With the price dynamics of the British pound proving to be a unique driver of the intraday movement of the EUR / GBP cross, the new nerves of COVID-19 should help limit any further declines, at least for the moment. It is speculated that the UK may delay plans to completely end the restrictions on June 21 in light of the spread of the so-called Delta variant. This makes it prudent to wait for acceptance below 0.8600 before traders begin to position themselves for any further depreciation movement.

Technical levels