• EUR/GBP defends the very important 200-day SMA, though struggles to gain any traction.
• The UK’s bleak economic outlook undermines sterling and offers some support to the cross.
• Concerns about the energy crisis in Europe weigh on the shared currency and cap the upside.

The EUR/GBP cross defends the very important 200-day SMA support and for now, seems to have stalled its recent pullback from a nearly one-month high touched last week. Spot prices, however, struggle to gain any meaningful traction and seesawed between tepid gains/minor losses, below mid-0.8400s through the early part of the European session.

The flash UK Manufacturing PMI unexpectedly falls in the contraction territory and comes in at 46.0 for August, which undermines the British pound and offers some support to the EUR/GBP cross. The data adds to concerns about a deeper economic downturn and overshadows the better-than-expected UK Services print of 52.5 for August. That said, rising bets for a 50 bps rate hike by the Bank of England in September, along with a modest US dollar pullback from a two-decade high, helps limit losses for sterling and caps the cross.

The shared currency, on the other hand, remains depressed amid worries about an energy crisis in the Eurozone, which could drag the region's economy faster and deeper into recession. In fact, European energy prices spiked to a record peak after Russia announced that it will halt supplies to Europe via the Nord Stream pipe for three days at the end of the month. Bulls seem rather unimpressed by mixed Eurozone Manufacturing PMI, which improves to 49.7 in August, though remains in the contraction territory.

The mixed fundamental backdrop warrants some caution for aggressive traders and positioning for a firm direction. Even from a technical perspective, the range-bound price action witnessed over the past two weeks or so further points to indecision among traders over the near-term trajectory for the EUR/GBP cross.

Technical levels to watch