EUR/GBP drops back towards 0.8500 as sellers come in ahead of the 200DMA

• EUR/GBP has been on the back foot for most of Monday’s session, perhaps weighed by poor Eurozone data.
• The pair has dropped back from close to 0.8550 to current levels just above 0.8500.
• Technical selling ahead of the 200DMA has likely also played a part, with the key downside support the 50DMA.

EUR/GBP has spent most of Monday’s session gradually ebbing lower and currently trades around 0.8510, down from Asia Pacific session highs close to 0.8550. The selling pressure isn't too surprising from a technical standpoint given the proximity of the pair’s 200-day moving average at 0.8506. The 200DMA has been a key level of resistance over the last few months. To the downside, the 0.8500 level is for now offering support but, below that, the key support that traders will be keeping an eye on is the 50DMA at 0.8487.

On the day, EUR/GBP trades lower by about 0.4% at present. Its underperformance is probably mostly technical, though poor Eurozone data released early during Monday’s European session probably hasn’t helped. German Factory Orders saw a massive 6.9% MoM decline versus expectations for a much more modest decline of 0.5%. Economists framed the data as not as bad as it seemed, however, as it pointed to an uptick in actual production in the months ahead. Elsewhere, Eurozone Sentix Investor Confidence took a bigger knock than expected in December, dropping to 13.5 from 18.3 last month, its lowest level since April.

Elsewhere, recent rhetoric from BoE members has seen markets almost completely price out any risk of a 15bps rate hike from the bank later in the month. The implied yield on the December 2021 three-month sterling LIBOR future currently sits at 12.5bps (the current BoE bank rate is 10bps). BoE Monetary Policy Committee member Michael Saunders, who voted in favour of a 15bps rate hike back in November, said he wanted more information about the impact of the new Omicron coronavirus variant before deciding how to vote this month. The message from BoE Deputy Governor Ben Broadbent on Monday was similar.

In terms of the main factors for traders to keep an eye on for the rest of the week, there will be a few ECB policymakers speaking on Wednesday and Friday. In the UK, meanwhile, the main event of the week will be the release of monthly GDP growth and economic activity numbers on Friday. Until then, any incoming news on Omicron that might swing the BoE back in favour of hiking next Thursday would be of note, although the bar for this is likely quite high.