EUR/GBP drops to fresh weekly low, holds just above 0.8575-0.8570 strong support

• EUR/GBP drifts lower for the second straight session and challenges the 0.8575-0.8570 support.
• Wednesday’s softer Eurozone inflation figures weigh on the Euro and exert downward pressure.
• The overnight dovish remarks by BoE’s Chief Economist Huw Pill should limit losses for the cross.

The EUR/GBP cross comes under heavy selling pressure on Thursday and drops to a fresh weekly low, back closer to the 0.8575-0.8570 support zone during the mid-European session.

The shared currency's relative underperformance against its British counterpart could be attributed to softer-than-expected Eurozone consumer inflation figures released on Wednesday. In fact, the flash estimate published by Eurostat showed that the annualized Eurozone Harmonised Index of Consumer Prices (HICP) decelerated to a 10.0% YoY rate in November from 10.6% in the previous month. This might have cooled expectations for more aggressive interest rate hikes by the European Central Bank (ECB), which, in turn, is seen dragging the EUR/GBP cross lower for the second straight day.

The high beta Sterling, on the other hand, benefits from the upbeat market mood and the prevalent US Dollar selling bias. This is seen as another factor exerting some downward pressure on the EUR/GBP cross. That said, the overnight dovish remarks by Bank of England (BoE) Chief Economist Huw Pill might keep a lid on any meaningful gains for the British pound. Apart from this, a bleak outlook for the UK economy should limit the downside for the EUR/GBP cross, at least for the time being.

Even from a technical perspective, repeated failures to find bearish acceptance below the 100-day SMA warrants some caution before positioning for any further depreciating move. That said, sustained weakness below the 0.8575-0.8570 horizontal support will mark a fresh breakdown and make the EUR/GBP cross vulnerable to challenge the very important 200-day SMA, currently around the 0.8535 region. This is followed by the 0.8500 psychological mark, which should now act as a pivotal point.

Technical levels to watch