• EUR/GBP staged a modest recovery following an early dip to fresh YTD lows.
• The formation of a rectangle could be seen as a bearish consolidation phase.
• A move beyond the 0.8460 resistance is needed to negate the negative bias.

The EUR/GBP cross reversed an early dip to fresh YTD lows and was last seen trading with modest gains, around the 0.8435-40 region.

The British pound's relative underperformance through the first half of the European session could be attributed to some long-unwinding trade amid a goodish pickup in the US dollar demand. That said, expectations for an imminent rate hike by the Bank of England later this year should act as a tailwind for the sterling and cap gains for the EUR/GBP cross.

Looking at the technical picture, the recent range-bound price action witnessed since the beginning of this week constitutes the formation of a rectangle on short-term charts. Given the recent sharp rejection slide from the very important 200-day SMA, the rectangle could be categorized as a bearish continuation phase amid slightly oversold conditions.

Meanwhile, the top boundary of the mentioned trading range, around the 0.8460 region, now coincides with 200-hour SMA. This should now act as a pivotal point for short-term traders. A sustained move beyond will suggest that the EUR/GBP cross has bottomed out in the near term and might trigger an aggressive short-covering move amid absent relevant fundamental catalyst.

The EUR/GBP cross might then aim back to reclaim the key 0.8500 psychological mark. The recovery momentum could further get extended towards the next relevant hurdle near the 0.8525-20 supply zone. Some follow-through buying will set the stage for a further near-term appreciating move and lift the cross further towards mid-0.8500s en-route the 0.8575-80 region.

On the flip side, the 0.8420-15 region, or the lower boundary of the weekly trading range, now seems to have emerged as immediate strong support. Bearish traders should wait for a sustained weakness below the mentioned support before placing fresh bets. The EUR/GBP cross might then turn vulnerable to break below the 0.8400 mark and slide to the 0.8335 support zone.

EUR/GBP 1-hour chart

Technical levels to watch