EUR/GBP slips below 0.8400 mark, multi-day low amid fading hopes for peace in Ukraine

• EUR/GBP witnessed some follow-through selling for the third successive day on Monday.
• The uncertainty over Ukraine was seen as a key factor behind the euro’s underperformance.
• Hawkish ECB expectations, BoE’s view on future rate hikes should help limit further losses.

The EUR/GBP cross dropped to a four-day low during the first half of the European session, with bears now looking to extend the descent further below the 0.8400 round-figure mark.

The cross struggled to capitalize on its early uptick, instead met with a fresh supply near the 0.8430 region on Monday and drifted into negative territory for the third successive day. Fading hopes of diplomacy in Ukraine were seen as a key factor behind the shared currency's relative underperformance and dragged the EUR/GBP cross further away from the YTD peak touched last week.

Investors remain worried that the European economy, which relies heavily on Russia to meet its energy needs, will suffer the most from the spillover effect of the Ukraine crisis. In fact, Christian Sewing, President of BDB - Germany’s top bank lobby - warned on Monday that the German economy will face a considerable recession if there is a halt to imports or delivery of Russian gas and oil.

That said, expectations that the European Central Bank will scale back its ultra-loose monetary policy as soon as year-end to tame surging inflation should lend some support to the euro. Apart from this, the fact that the Bank of England had softened its language on the need for further interest rate hikes should act as a headwind for the British pound and help limit losses for the EUR/GBP cross.

Hence, the ongoing retracement slide might still be seen as a buying opportunity and is more likely to remain shallow. This, in turn, warrants some caution for aggressive bearish traders and before confirming that the EUR/GBP cross has topped out in the near term.

Technical levels to watch