The euro cross paused the four-day losing streak on Monday and changed the course towards the North. EURGBP closed in the green closed at 0.9050.
Much worse than forecast UK quarterly GDP at -2.2%, revised downwards by 0.2% from the Q1 estimate feeds the UK recovery stage is still behind the Euro Area’s recovery pattern. Monthly GDP for April showed a 10.4% fall in GDP, and the Q1 reported the largest fall in UK GDP since Quarter 3 (July to Sept) 1979, according to the offical release.
Countries around the world are working to “flattening the curve.” Across the UK, the number of newly confirmed cases per day has been falling in late April. The first case of Covid-19 was reported on 31 Jan 2020, according to John Hopkins data. Since then, there have been 287,290 confirmed cases of COVID in the UK, and more than 44,000 death were reported.
Regarding the GBP driver, Brexit headlines grab the hot seat again. Besides, the EU Recovery Fund deal is the other key driver to the cross EURGBP.
The UK-EU trade negotiations have been showing a little progress, and it is fairly unlikely there will be a change in the stance next week. As the UK-EU trade outlook is the main GBP driver, the uncertainty associated with it suggests limited GBP upside over the summer months, with GBP remaining the G10 FX underperformer, ING analyst said in a note.
Data review: UK Manufacturing PMI stabilizes in June, whereas Services PMI data continues to improve from April’s record low.
- UK gross domestic product (GDP) fell by 2.2% in Quarter 1 2020, revised downwards by 0.2 percentage points from the first quarterly estimate, according to the ONS.
- UK Manufacturing PMI at 50.1 in June (Flash: 50.1)
- UK Final services PMI at 47.1 in June, up sharply from 29 in May-which is highest for 4-months.
June PMI data highlights that the worst phase of the service sector downturn has passed as more businesses start to reopen and adapt their operations to meet social distancing requirements, Tim Moore, Economics Director at IHS Markit commented.
Data preview: It will be quiet in terms of market-moving data releases, and that will leave traders’ main focus on recovery-related headlines around the world.
We expect EURGBP to trade in the 0.8990-0.9100 range in the week ahead.
The EURGBP has reaffirmed support since last week. The oscillator is falling, and the RSI lacks momentum, suggesting downside range trading. Last week the cross had been well supported at 0.9000, traced out a triple bottom. On the upside, the trend is supportive, but the price needs to take out the recent high at 0.9100 to confirm the trend once again. The price has struggled to breach the 61.8 fibs (below chart), prompting a retracement to back to 0.9000.
The daily indicators point the price to consolidate in the week ahead, but the price must take out key support at 0.8990 to set the scene for a retracement.
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