EUR/GBP remains depressed below mid-0.8600s, hangs near YTD low after German CPI

• EUR/GBP drifts lower for the fourth straight day and hits a fresh YTD low on Wednesday.
• Softer consumer inflation figures from France and Germany weigh on the shared currency.
• Expectations for more BoE rate hikes contribute to the British Pound’s outperformance.

The EUR/GBP cross prolongs its bearish trend for the fourth successive day and drops to a fresh YTD low during the first half of trading on Wednesday. Spot prices, however, manage to rebound a few pips during the European session and currently trade around the 0.8635 region, down 0.15% for the day.

The shared currency drifts lower on the back of softer consumer inflation figures from the Eurozone's two largest economies - Germany and France - and turns out to be a key factor weighing on the EUR/GBP cross. In fact, the headline German CPI missed consensus estimates and decelerated to the 6.1% YoY rate in May from 7.2% in the previous month. Earlier the French CPI also surprised to the downside and fell 0.1% MoM in May, representing a sharp contraction from the previous month's reading of 0.6%. This fuels speculations that the European Central Bank (ECB) could slow the pace of its policy tightening, which, in turn, is seen undermining the Euro.

In contrast, investors remain anxious over the possibility of additional interest rate hikes by the Bank of England (BoE), bolstered by stronger-than-expected consumer inflation figures released last week. This further contributes to the British Pound's relative outperformance against its European counterpart and is seen as another factor dragging the EUR/GBP cross lower. That said, a strong pickup in the US Dollar (USD) is holding back the GBP bulls from placing aggressive bets and helping limit losses for the cross, at least for the time being.

Even from a technical perspective, the Relative Strength Index (RSI) on the daily chart has moved on the verge of breaking into the oversold territory. This further makes it prudent to wait for some near-term consolidation or a modest bounce before positioning for any further near-term depreciating move. The aforementioned fundamental backdrop, however, seems tilted firmly in favour of bearish traders, suggesting that any attempted recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Technical levels to watch