• EUR/GBP witnessed some follow-through selling for the second consecutive session on Thursday.
  • Some repositioning trade ahead of the ECB policy decision seemed to exert pressure on the cross.
  • Brexit woes, COVID-19 jitters acted as a headwind for the sterling and helped limit deeper losses.

The EUR/GBP cross quickly recovered few pips from three-day lows touched in the last hour, albeit lacked any follow-through buying and remained below the 0.8600 mark.

The cross added to the previous day’s heavy losses and witnessed some follow-through selling for the second consecutive session on Thursday. The downward trajectory dragged the EUR/GBP cross further away from near two-month tops, around the 0.8670 region touched earlier this week.

The shared currency’s relative underperformance against its British counterpart could be attributed to some repositioning traded ahead of the European Central Bank meeting. Apart from this, the intraday downfall lacked any obvious fundamental catalyst and is likely to remain cushioned.

The resurgence of the COVID-19 infections in the UK, along with the impasse over the Northern Ireland Protocol of the Brexit deal might continue to act as a headwind for the British pound. This, in turn, could extend some support to the EUR/GBP cross and help limit the downside.

In fact, new cases have been rising by more than 50,000 a day in the UK. On the Brexit front, the EU rejected the UK’s demand for a new approach to the Northern Ireland Protocol. This, along with the BoE Deputy Governor Ben Broadbent’s comments, should cap gains for the sterling.

Broadbent said that he was not convinced that current inflation should mean higher inflation in 18-24 months – a more relevant time horizon for monetary policy. The market was quick to react and pushed back expectations for a 15 bps hike by the BoE to August 2022 from May 2022.

Heading into the highly-anticipated ECB monetary policy decision, investors also seemed reluctant to place any aggressive bets. This was seen as another factor that assisted the EUR/GBP cross to find some support near a multi-month-old descending trend-line resistance breakpoint.

Thursday’s spotlight will remain on the ECB decision and any significant changes in the forward guidance. This, along with the ECB President Christine Lagarde’s remarks at the post-meeting press conference, might produce some trading opportunities around the EUR/GBP cross.

Technical levels to watch