EUR/GBP slides back closer to mid-0.8500s, downside seems limited ahead of ECB

• EUR/GBP drifts lower on Thursday, albeit manages to hold above a one-week low.
• Bets for more aggressive policy easing by the BoE cap the GBP and lend support.
• Traders might also refrain from placing aggressive bets ahead of the ECB meeting.

The EUR/GBP cross struggles to capitalize on the previous day's goodish rebound from the 0.8545 area, or a one-week low and meets with a fresh supply on Thursday. Spot prices remain depressed through the early European session and currently trade around the 0.8560 region as traders keenly await the European Central Bank (ECB) meeting before placing fresh directional bets.

The ECB is widely expected to keep its main refinancing rate unchanged and hence, the focus will remain on the fresh round of staff projections, which will be scrutinized for cues about the timing of any upcoming interest rate cut. The markets have been pricing in a greater chance of the first rate cut in June amid a faster-than-anticipated fall in the Eurozone inflation. This, in turn, is seen undermining the shared currency and exerting some pressure on the EUR/GBP cross.

Hence, the outlook, along with ECB President Christine Lagarde's comments at the post-meeting press conference, will play a key role in influencing the shared currency in the near term and provide some meaningful impetus to spot prices. Heading into the key central bank event risk, rising bets for at least four interest rate cuts this year by the Bank of England (BoE), starting in June, should cap the upside for the British Pound (GBP) and limit losses for the EUR/GBP cross.

From a technical perspective, the recent failure near the 100-day Simple Moving Average (SMA) and the subsequent downfall favours bearish traders. The aforementioned fundamental backdrop, however, makes it prudent to wait for strong follow-through selling before positioning for any meaningful downside and an eventual breakdown through the 0.8500 psychological mark, or the YTD low touched in February.