- EUR/GBP was seen consolidating its recent losses to over a one-month low.
- Repositioning trade ahead of the ECB decision extended support to the euro.
- The lack of follow-through buying warrants some caution for bullish traders.
The EUR/GBP cross seesawed between tepid gains/minor losses and remained confined in a range around the 0.8300 mark through the first half of the European session.
Following an early dip to over a one-month low, the EUR/GBP cross attracted some intraday buying on Thursday, though the attempted recovery lacked bullish conviction. The shared currency's relative outperformance lacked any obvious fundamental catalyst and could be solely attributed to some repositioning trade ahead of the European Central Bank meeting.
Given that the ECB is now more concerned with inflation than growth, it is expected to continue the process of policy normalisation unless the economic situation deteriorates significantly. The central bank has the choice to end the Quantitative Easing (QE) program immediately or shift guidance to suggest that interest rates could increase as QE is unwound.
That said, concerns about the potential economic fallout from the Ukraine crisis could hold back the ECB from announcing any major chances to its monetary policy settings. Apart from this, some follow-through buying around the British pound, bolstered by the ongoing US dollar retracement slide, acted as a headwind for the EUR/GBP cross and capped any meaningful upside.
The mixed fundamental backdrop warrants some caution for aggressive traders and before positioning for a firm near-term direction. From a technical perspective, weakness below the 0.8285 static support will be seen as a fresh trigger for bearish traders. This, in turn, would set the stage for an extension of the recent sharp pullback from the YTD peak touched in March.