EUR/GBP drops to the lowest level since February 2020, around 0.8370-65 area

• EUR/GBP prolonged its bearish trend witnessed over the past four weeks or so.
• Easing Omicron fears turned out to be a key factor that underpinned the sterling.

The EUR/GBP cross edged lower through the early European session and dropped to the lowest level since February 2020, around the 0.8370-65 region in the last hour.

Following an early uptick to the 0.8400 neighbourhood, the EUR/GBP cross met with a fresh supply on Friday and prolonged its recent bearish trend witnessed over the past four weeks or so. The British pound has been outperforming against its European counterpart amid easing concerns about the potential economic fallout from the continuous surge in new COVID-19 cases.

In fact, Britain reported a record 189,213 new COVID-19 cases on Thursday amid an alarming spread of the Omicron variant. Investors, however, remain optimistic over signs the new strain might be less severe than the Delta variant and is unlikely to derail the economic recovery. Moreover, a UK study indicated that Omicron infections are less likely to lead to hospitalization.

This comes on the back of a surprise rate hike by the Bank of England on December 16, which turned out to be a key factor that continued underpinning the sterling. Conversely, the shared currency, so far, has struggled to gain any meaningful traction and remained at the mercy of the US dollar price dynamics. This was seen as another factor exerting pressure on the EUR/GBP cross.

With the latest leg down, the EUR/GBP cross has now dropped over 200 pips from the vicinity of the 0.8600 mark, or the monthly swing high, which coincided with a multi-month-old descending trend-line resistance. Given that technical indicators on the daily chart are still far from being in the oversold territory, the stage seems all set for a further near-term depreciating move.

Technical levels to watch