EUR/GBP rebounds from multi-month lows, back around 0.8900 mark

• EUR/GBP witnessed some follow-through selling for the third straight session on Wednesday.
• Brexit optimism continued underpinning pound and was seen as a key factor exerting pressure.
• Dovish comments by Bank of Spain chief economist weighed further added to the selling bias.

The EUR/GBP cross edged lower during the early European session and dropped to its lowest level since June, around the 0.8860 area in the last hour, albeit quickly recovered few pips thereafter. The cross was last seen trading around the 0.8900 mark, nearly unchanged for the day.

The cross failed to capitalize on its early uptick to the 0.8915-20 region, instead met with some fresh supply and drifted into the negative territory for the third consecutive session on Wednesday. The shared currency weakened a bit in reaction to dovish comments by Bank of Spain chief economist, Oscar Arce, saying that the ECB must introduce additional stimulus in December to reduce the risk of deflation in the eurozone.

On the other hand, the British pound's relative outperformance against its European counterpart could further be attributed to renewed hopes for a last-minute Brexit deal. In the latest Brexit-related update, Daily Express' Brussels correspondent, Joe Barnes tweeted – citing EU sources – that British negotiators have accepted the dispute settlement for goods and services, but not the level-playing field and fisheries.

Despite differences on key sticking points, the fact that progress is being made continued fueling optimism. Apart from this, a promising development in late-stage COVID-19 vaccine trials seemed to have forced investors to push back expectations for negative BoE interest rates, which remained supportive of the prevalent bullish sentiment surrounding the sterling.

The downward trajectory dragged the EUR/GBP cross below September monthly swing lows, around the 0.8865 region, though the lack of any strong follow-through warrants some caution for bearish traders. In the absence of any major market-moving economic releases, the incoming Brexit-related headlines will continue to play a key role in influencing the pound and produce some meaningful trading opportunities around the EUR/GBP cross.

Technical levels to watch