EUR/GBP seems vulnerable below 0.8500, near two-month lows

• EUR/GBP witnessed fresh selling on Thursday and dropped to near two-month lows.
• Signs of easing fuel crisis in the UK boosted the sterling and exerted some pressure.
• Dovish sounding ECB minutes undermined the euro and contributed to the downfall.

The EUR/GBP cross dropped to near two-month lows during the mid-European session, with bears looking to extend the slide further below the key 0.8500 psychological mark.

Following the previous day's brief pause, the EUR/GBP cross met with some fresh supply on Thursday and seems all set to extend its recent rejection slide from 200-day SMA – levels just above mid-0.8600s. The British pound's relative outperformance comes amid signs of easing fuel crisis in the United Kingdom, which, in turn, exerted downward pressure on the cross.

This, to a larger extent, helped offset dovish sounding comments by the Bank of England (BoE) chief economist, Huw Pill, expecting interest rates to remain at relatively low levels for the coming years. Pill added that the current inflation strength looks to prove more lasting than anticipated and the BoE plans to unwind stock of asset purchases in the best way possible.

On the other hand, a modest US dollar weakness extended some support to the shared currency, though a more dovish ECB Monetary Policy Meeting Accounts kept a lid on any meaningful gains. The minutes revealed that the near-term increase in inflation not calling for policy tightening and policymakers think that the accommodative monetary policy stance remains necessary.

Nevertheless, the EUR/GBP cross traded with a negative bias for the sixth session in the previous seven and acceptance below the 0.8500 mark supports prospects for further losses. Hence, a subsequent fall towards the 0.8465 intermediate support, en-route August swing lows, around mid-0.8400s, remains a distinct possibility amid absent relevant marked moving economic data.

Technical levels to watch