EUR/GBP eases from two-week tops, still well bid around 0.8600 mark

• EUR/GBP witnessed a dramatic turnaround and rallied over 50 pips from weekly lows.
• COVID-19 jitters and Bailey’s dovish comments weighed heavily on the British pound.
• An upward revision of the Eurozone Manufacturing PMI benefitted the shared currency.

The EUR/GBP cross maintained its strong bid tone through the mid-European session, albeit has retreated few pips from over two-week tops touched earlier this Thursday. The cross was last seen trading around the 0.8595 region, still up nearly 0.30% for the day.

Following an early dip to weekly lows, the EUR/GBP cross caught some aggressive bids and rallied over 50 pips from the 0.8565-60 horizontal support. The sharp intraday spike was exclusively sponsored by the emergence of some heavy selling around the British pound following the Bank of England Governor, Andres Bailey's comments.

During a scheduled speech on Thursday, Bailey noted that the central bank expects the cost of living to go up in the coming months but that should only be short-lived. This, along with a downward revision of the UK Manufacturing PMI and worries about the spread of the more contagious Delta variant of the coronavirus, weighed on the sterling.

On the other hand, the shared currency benefitted from an upward revision of the Manufacturing PMI prints and an unexpected dip in the Eurozone unemployment rate during May. The combination of supporting factors provided a strong lift to the EUR/GBP cross, though bulls struggled to capitalize on the move or find acceptance above the 0.8600 mark.

From a technical perspective, the EUR/GBP cross, so far, has repeatedly failed to decisively break through a resistance marked by a two-month-old descending trend-line resistance. This makes it prudent to wait for some strong follow-through buying before traders start positioning for an extension of the recent positive move from two-and-half-month lows.

Technical levels to watch