EUR/GBP remains on the defensive, around 0.8500 post-German Industrial Production data

• EUR/GBP witnessed some selling for the second successive day on Tuesday.
• Prospects for an imminent BoE rate hike acted as a tailwind for the sterling.
• A modest USD weakness benefitted the euro and helped limit the downside.

The EUR/GBP cross remained depressed heading into the European session, with bears awaiting sustained weakness below the key 0.8500 psychological mark.

The cross edged lower for the second successive day on Tuesday and might now be looking to extend the previous day's rejection slide from the vicinity of the 0.8500 psychological mark. In the absence of any negative Brexit-related headlines, the British pound's relative outperformance could be attributed to rising bets for an imminent rate hike by the Bank of England in December.

That said, a modest US dollar weakness extended some support to the shared currency. Apart from this, the UK-EU impasse over the Northern Ireland Protocol held back the GBP bulls from placing aggressive bets and helped limit any deeper losses for the EUR/GBP cross, at least for the time being. This, in turn, warrants some caution before positioning for any further depreciating move.

On the economic data front, German Industrial Production came in to show a growth of 2.8% in October, albeit did little to provide any impetus to the EUR/GBP cross. This further makes it prudent to wait for some follow-through selling below the 0.8490-85 horizontal support to confirm that the recent recovery move from the YTD low has run out of steam.

Tuesday's economic docket also features the release of the German and Eurozone ZEW Economic Sentiment Index. Apart from this, the final version of the Eurozone GDP print for the third quarter of 2021 will influence the common currency. Traders will further take cues from a fresh Brexit development to grab some short-term opportunities around the EUR/GBP cross.

Key technical levels