EUR/GBP keeps the red near 0.8460-65 area, moves little post-German CPI

• EUR/GBP witnessed fresh selling on Monday and reversed a part of Friday’s strong gains.
• A combination of factors undermined the euro and exerted some pressure on the cross.
• Brexit-related uncertainties acted as a headwind for the GBP and helped limit the losses.

The EUR/GBP cross remained depressed, around the 0.8460-65 region through the mid-European session and had a rather muted reaction to the German consumer inflation figures.

Having struggled to reclaim the key 0.8500 psychological mark, the EUR/GBP cross opened with a bearish gap on the first day of a new week and eroded a part of Friday's strong gains to a near two-week high. The intraday move up quickly ran out of steam near the 0.8485 region amid the emergence of fresh selling around the shared currency.

Views that Friday's market reaction to the discovery of the omicron coronavirus variant was overdone led to a positive turnaround in the risk sentiment and drove flows away from funding currencies, including the euro. Apart from this, rebounding US Treasury bond yields revived the US dollar demand and further undermined the common currency.

On the other hand, expectations for an imminent interest rate hike by the Bank of England in December further contributed to the British pound's relative outperformance against its European counterpart. That said, persistent Brexit-related uncertainties acted as a headwind for the sterling and helped limit the downside for the EUR/GBP cross.

On the economic data front, hotter-than-expected German CPI print did little to influence the euro or provide any impetus to the EUR/GBP cross. In fact, the Harmonized Index of Consumer Prices (HICP) accelerated to a 6.0% YoY rate in November, surpassing consensus estimates pointing to a rise to 5.4% from the 4.6% reported in October.

Meanwhile, the lack of a strong follow-through selling warrants some caution before confirming that the recent recovery from the 0.8380 support zone, or the lowest level since February 2020 has run out of steam. That said, the EUR/GBP pair's inability to capitalize on Friday's strong move up should hold back bullish traders from placing aggressive bets.

Technical levels to watch