EUR/GBP drops to multi-month low, bears have the upper hand near mid-0.8300s

• EUR/GBP remains under heavy selling pressure for the fifth successive day on Thursday.
• The European gas crisis turns out to be a key factor weighing heavily on the shared currency.
• Resurgent USD demand exerts pressure on sterling, which might lend support to the cross.

The EUR/GBP cross is prolonging its recent sharp pullback from the 0.8585 region and losing ground for the fifth successive day on Thursday. The downward trajectory remains uninterrupted through the mid-European session and has now dragged spot prices to over a three-month low, around the 0.8345 region.

The shared currency's relative underperformance comes amid renewed worries over a halt of gas flows from Russia, which could trigger an energy crisis in the Eurozone. In fact, Russian energy group Gazprom said that flows through its main Nord Stream 1 pipeline to Germany had been cut to 20% of their normal levels from Wednesday because of maintenance. Though seems temporary, the supply reduction could drag the region's economy faster and deeper into recession.

On the economic data front, Destatis reported this Thursday that inflation in Germany, as measured by the Consumer Price Index (CPI), edged lower to 7.5% YoY in July from the 7.6% previous. The Harmonised Index of Consumer Prices (HICP), the European Central Bank's preferred gauge of inflation, meanwhile, climbed to 8.5% in the same period from 8.2% as against 8.1% expected. This, however, fails to impress the euro bulls or offer any support to the EUR/GBP cross.

Apart from this, political instability in Italy - ahead of elections in September - adds to concerns about the regions economic outlook and could further weigh on the euro. This supports prospects for a further near-term depreciating move for the EUR/GBP cross. The British pound, on the other hand, is pressured by resurgent US dollar demand and could help limit deeper losses. Nevertheless, the fundamental backdrop seems tilted firmly in favour of bearish traders.

Technical levels to watch