The EUR and GBP have benefited from the improved risk sentiment, with both pairs up to around 0.40% and 0.70% against the dollar. In comparison, the EUR was down more than a percent from Monday’s highest point.
On Monday, suddenly, GBP outperformed across the board. There hasn’t been a clear, single catalyst behind the increase in GBP risk assets overnight. From here on EURGBP’s trend cast on the recovery path between UK and EA. Besides, the latest developments of Brexit are the other key drivers to the euro cross in the coming days.
According to the ONS estimate published last week, the UK’s economy is on course to decline by 20-25% in the second quarter of 2020, led by negative contributions across all major sectors.
- Kemar Whyte Senior Economist – Macroeconomic Modelling and Forecasting said, “The latest ONS estimates suggest that GDP grew by 1.8 percent in May as the economy started to reopen. However, GDP in May was 25 percent smaller than in February before lockdown measures were implemented, and we are doubtful about a V-shaped recovery. The loosening of Covid-19 restrictions has provided an impetus to kickstart the UK economy. However, the measures unveiled by the Chancellor at the Summer Statement are a poorly timed change of tack and could trigger a sharp rise in unemployment, and possibly lead to permanent long-term damage to the economy.”
We don’t expect any progress on the Brexit front in the near term. Flipside European leaders are edging towards an agreement on the EU recovery fund. The combination of these two factors suggests that EURGBP could outperform in the coming weeks/months.
- UK GDP grew by 1.8% in May 2020 but is still well below the levels seen in February 2020, according to the official release.
Commenting on last week’s GDP figures, Jonathan Athow, Deputy National Statistician for Economic Statistics, said, “Manufacturing and house building showed signs of recovery as some businesses saw staff return to work. Despite this, the economy was still a quarter smaller in May than in February, before the full effects of the pandemic struck.
- Consumer price inflation increased by 0.1% to 0.6% in the year to June 2020, according to the ONS latest data.
Between May 2020 and June 2020, the Claimant Count decreased by 28,100 (1.1%) to 2.6 million. Since March 2020, the claimant count has increased by 112.2%, or 1.4 million, according to the latest data released by ONS. And average weekly earnings, excluding bonuses, grew at an annual rate of 0.7% in the three months to May.
Data preview: On Friday, we will see Gfk consumer confidence, preliminary (June), June Retail sales, and July Manufacturing and Services PMI, preliminary.
In The past few months, the cross has been moving higher in a well-defined ascending channel with strong support at 0.8930 and 0.8860. Moreover, the price is trading above all the moving averages on the daily, weekly, and monthly charts, implying strength. Hence the price sustained above this support, then a decent target of 0.9300, is not ruled out over a given period, if the price break and hold above the 0.9175 level.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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