EUR/GBP flirts with daily lows, around 0.8500 mark

• EUR/GBP met with a fresh supply on Wednesday and retreated further from an over two-week high.
• A positive risk tone, downward revision of Eurozone PMI undermined the funding currency, the euro.
• Absent negative Brexit headlines prompted some GBP short-covering and added to the selling bias.

The EUR/GBP cross remained depressed through the first half of the European session and was last seen flirting with the daily low, around the key 0.8500 psychological mark.

The cross witnessed some selling on Wednesday and eroded a part of the previous day's strong gains to over a two-week high, around the 0.8535-40 region. In the absence of any negative Brexit-related headlines, a subdued US dollar demand was seen as a key factor behind the British pound's relative outperformance against its European counterpart.

On the other hand, a generally positive risk tone weighed on funding currencies, including the euro. The market sentiment seems to have stabilized as investors preferred to wait and see if the Omicron variant would derail the economic recovery. Adding to this, a downward revision of the German/Eurozone Manufacturing PMIs further undermined the common currency.

Meanwhile, the UK Manufacturing PMI was also revised lower to 58.1 for November from 58.2 estimated originally. Apart from this, the UK-EU impasse over the Northern Ireland Protocol, along with the worsening row over the post-Brexit fishing rights between France and Britain could act as a headwind for the sterling and help limit losses for the EUR/GBP cross.

Even from a technical perspective, oscillators on the daily chart have just started moving into the positive territory and warrant caution for bearish traders. This makes it prudent to wait for a strong follow-through selling before confirming that the recent strong recovery from the 0.8380 region, or the lowest level since February 2020 has run out of steam.

Technical levels to watch