EUR/GBP breaks below the 200-day SMA and falls to two-month lows around 0.8400

• EUR/GBP breaks below the 200-day SMA and falls to a two-month low on Wednesday.
• Recession fears weigh on the common currency and act as a headwind for the cross.
• High expectations about the BoE rate hike and upbeat data from the UK contribute to the improvement in the pound sterling.

The crossing EUR/GBP has seen some selling on Wednesday and has broken below the important support of the 200-day SMA. The pair has fallen to lows around 0.8410-0.8405 during the first part of the European session.

Investors are followed worrying that the energy crisis in Europe could drag the region’s economy into a faster and deeper recession. the eurozone too faces the risk of further fragmentation amid the recent sharp rise in borrowing costs for the most indebted countries due to the European Central Bank’s tightening plan. This fact is seen as a key factor in the relative underperformance of the common currency and has put some downward pressure on the EUR/GBP cross.

Secondly, sterling was supported by increasing odds of a 50 basis point rate hike by the Bank of England in August, which drew additional support from UK macroeconomic releases on Wednesday. The UK Office for National Statistics reported that the economy registered a growth of 0.5% in May, against the forecast of a flat reading. This figure also marked a strong rebound from the 0.3% contraction recorded in April and was accompanied by stronger data from the UK industrial sector.

In fact, UK manufacturing output rose 1.4% mom in May, compared to the 0.1% expected and the fall of 0.6% registered in April. Furthermore, total industrial production also beat estimates and increased by 0.9% in May, compared to a 0.1% decline in the previous month. Aside from this, subdued US dollar price action was seen as another factor benefiting the British pound, which in turn contributed to the selling tone surrounding the EUR/GBP cross.

With the last move down, A short-term bearish break below a technically significant moving average appears to have been confirmed. That said, the decline appears limited amid concerns that the British government’s controversial Northern Ireland Protocol Bill could trigger a trade war with the European Union. Therefore, it is prudent to wait for a break below 0.8400 before positioning for a further drop in the EUR/GBP cross.

EUR/GBP technical levels