EUR/GBP drops to fresh daily low, around 0.8425 region post-Eurozone CPI

• EUR/GBP attracts fresh selling on Thursday and retreats from the vicinity of the weekly high.
• Europe's energy supply concerns, a downward revision of the monthly HICP weighs on the euro.
• Expectations for a gradual BoE rate hike, recession fears could cap sterling and limit the downside.

The EUR/GBP cross meets with a fresh supply on Thursday and retreats over 40 pips from the vicinity of the weekly high. The cross drops to a fresh daily low, around the 0.8425 region in the last hour, and reverses a part of the previous day's strong bounce from a nearly two-week low.

The shared currency continues to be undermined by mounting energy supply concerns, which could drag the Eurozone economy faster and deeper into recession. This turns out to be a key factor acting as a headwind for the EUR/GBP cross and attracting fresh sellers at higher levels. Meanwhile, the latest leg down follows a sharp downward revision of the Eurozone Harmonised Index of Consumer Prices (HICP) for July to 0.1% MoM from the 0.8% reported previously.

The British pound, on the other hand, draws some support from a modest US dollar pullback from the monthly high set earlier this Thursday. This was seen as another factor exerting additional downward pressure on the EUR/GBP cross. That said, speculations that an economic downturn might force the UK central bank to adopt a gradual approach to raising interest rates could cap any meaningful gains for sterling and lend some support to the EUR/GBP cross.

The mixed fundamental backdrop could hold back traders from placing aggressive bets and contribute to limiting the downside for the EUR/GBP cross, at least for the time being. Even from a technical perspective, the recent price action within a broader trading range witnessed over the past two weeks or so points to indecision among traders. This further makes it prudent to wait for some follow-through selling before positioning for further intraday losses.

Technical levels to watch