EUR/GBP dives below 0.9000 to hit eight-week lows

• EUR/GBP dives to eight-week lows below 0.9000.
• A dovish ECB and COVID-19 have sent the euro 0.8% lower this week.
• The pair is testing an important support level at 0.9000.

The euro has extended its decline from week-highs near 0.9100, reaching levels sub-0.9000 for the first time in almost two months. The increase of COVID-19 cases in Europe and the measures to tackle them have hammered the euro against a somewhat stronger pound this week

Euro hammered by the ECB and COVID-19

The common currency is trading lower against the pound sterling for the second consecutive day on Friday and set for a 0.85% weekly decline. Investors’ concerns about the impact of the new lockdowns introduced in France and Germany and the regional confinements in Spain on a fragile economic recovery have punished the euro this week.

Apart from that, the dovish message of the European Central Bank on Thursday, flagging the introduction of further stimulus measures in December have increased selling pressure on the euro.

In contrast, the pound has remained fairly strong this week, favoured by the absence of Brexit news. The reopening of the talks this week, with the EU aiming for a deal by mid-November has eased fears of a “hard Brexit” which has buoyed the GBP.

EUR/GBP flirting with an important support level at 0.9000

From a technical perspective, the euro is eroding the base of the last weeks' trading range, at 0.9000 psychological level. A successful breach of this level might increase bearish pressure towards 0.8911 (61,8% Fibonacci retracement of the May – September rally) before testing September lows at 0.8865.

On the upside, an upside reaction should extend beyond the 0.9100 descending trendline resistance to negate the bearish trend, and extend later to 0.9145 (October 20 high) and 0.9220 (September 23 high).

Technical levels to watch