EUR/GBP extends sharp recovery move from 0.85 neighborhood

Having dropped to a 3-day low near 0.8510 level, the EUR/GBP cross attracted some fresh bids and has now reversed majority of its losses recorded in the previous session.

The shared currency has managed to recovery early losses led by dovish comments from the ECB President Mario Draghi. Moreover, market also seems to have largely ignored comments from Deutsche Bundesbank President Jens Weidmann, supporting ECB's accommodative policy.

   •  ECB’s Weidmann: Current ECB expansive monetary policy is appropriate

Meanwhile, a fresh bout of selling pressure around the British Pound further collaborated to the pair's recovery move and lifted it to fresh session peaks near the 0.8560-65 region.

   •  GBP/USD drops sharply to 1.2460 as risk-off intensifies

In absence of any fresh fundamental drivers, the recovery could be solely attributed to short-covering from the vicinity of 0.85 psychological mark. However, it remains to be seen if the cross is able to build on to the ongoing recovery move or once again runs through some fresh supply near the very important 200-day SMA support, now turned immediate strong hurdle. 

Technical levels to watch

Momentum above 0.8570 level could get extended towards 0.8595-0.8600 region (200-day SMA), above which a bout of short-covering has the potential to lift the cross back towards mid-0.8600s horizontal hurdle.

On the downside, 0.8540 level now becomes immediate support, which if broken is likely to accelerate the slide back towards the 0.85 handle, en-route 0.8480-75 support area.