• EUR/GBP retreated further from a nearly two-week high, though lacked any follow-through.
• An ascending channel formation points to a short-term uptrend and favours bullish traders.
• Sustained break below the 0.8600-0.8590 support would negate the near-term positive bias.

The EUR/GBP cross witnessed some selling on Wednesday and moved further away from a nearly two-week high, around the mid-0.8600s touched the previous day. Spot prices dropped to a two-day low during the early European session, though found support near the 0.8600 mark and recovered a few pips thereafter.

European Central Bank chief Christine Lagarde on Tuesday offered no fresh insight on the rate hike path or the makeup of the new anti-fragmentation tool. This, in turn, was seen as a key factor behind the shared currency's relative underperformance and exerted downward pressure on the EUR/GBP cross.

On the other hand, Brexit woes, along with expectations that the Bank of England would opt for a more gradual approach towards raising interest rates, acted as a headwind for sterling. The combination of diverging forces held back bears from placing aggressive bets around the EUR/GBP cross.

Market participants also seemed reluctant ahead of ECB President Christine Lagarde and the BoE Governor Andrew Bailey's speech at the ECB forum in Sintra, Portugal. This makes it prudent to wait for some follow-through selling before positioning for any further downfall for the EUR/GBP cross.

From a technical perspective, the recent bounce from the vicinity of the 0.8500 psychological mark has been along an upward-sloping trend channel and points to a short-term bullish trend. The lower end of the channel coincides with the daily low and should now act as a key pivotal point.

A convincing break below might prompt aggressive technical selling and drag the EUR/GBP cross to intermediate support near the 0.8560 region. The downward trajectory could further get extended towards resting the last week's swing low, just ahead of the 0.8500 round-figure mark.

On the flip side, the 0.8650 area, or the overnight swing high, now seems to act as an immediate resistance ahead of the 0.8675 region, or the top boundary of the aforementioned channel. Sustained strength beyond would be seen as a fresh trigger for bulls and pave the way for additional gains.

EUR/GBP 4-hour chart

Key levels to watch