The euro cross extended its rally to the critical resistance level, breached on an intraday basis, but twice failed to close above.

The daily stochastics remains solid, and as the weekly stochastics has picked up markedly, the risk of a new decline to supports located at 0.8900 and 0.8860 have eased dramatically in the coming days.

The proposed EU recovery fund and the latest developments of Brexit are the key drivers to the cross. The pound fell over a percent against the euro post the BOE policy meeting. The MPC voted unanimously to maintain the bank rate at 0.1%. And the Bank raise QE by 100BN pound, as expected.

Investors continue to grapple with positive impacts of economies reopening, as well as the increased risk of a virus flare-up that goes with it. G10 currencies rebounded on Monday against the dollar along with the Global equity markets.

  • Agent’s summary report said, “In the UK, more companies are reopening as lockdown restrictions ease, but activity remains very weak.” On June 18, the BOE published Agent’s summary of business conditions-2020 Q2, which summarises intelligence gathered by the Bank’s Agents between mid-May and mid-June.
  • Another survey Decision Maker Panel survey-2020 Q2 reported that “The spread of coronavirus (Covid-19) was expected to have a large impact on UK businesses in 2020 Q2”.

As regards Brexit, the United Kingdom has left the European Union (EU) at midnight on January 31, 2020 (23:00 GMT). A transition period is now in place until December 31, 2020. During this period, all EU rules and regulations will continue to apply to the UK, as per the sources.

“The UK and the EU have agreed to hold more negotiation rounds in July and August. The ambition is now to reach an agreement in August ahead of the EU summit in October. There are signs that both sides may be willing to soften their positions during these negotiations, but comments after the meeting suggest the individual negotiating positions are unchanged. Our base case (65%) remains a simple free trade agreement on goods (not services) in the autumn. We do not expect any breakthrough this summer. We still assign a 35% probability of a no-deal Brexit by yearend”, an economist at Danske Bank said.

Data review: 

  • The UK unemployment rate for the three months to April 2020 was estimated at 3.9%, 0.1% higher than a year earlier but largely unchanged on the previous quarter, according to ONS.
  • CPI 12-month rate was 0.5% in May 2020, down from 0.8% in April.
  • The MPC voted unanimously to maintain the bank rate at 0.1%. And the Bank raise QE by 100BN pound, as expected.
  • Retail sales partly rebounded in May 2020 with an increase of 12.0% when compared with the record falls experienced in the previous month, but sales were still down by 13.1% in February before the impact of the coronavirus (COVID-19) pandemic, according to the official report.

 Data preview: We will see Flash Manufacturing and Services PMI.

We expect the indices to rise partially. Output continues to be significantly weaker than a year ago, though there has been a modest improvement in recent weeks as more companies reopen. A growing number of manufacturers are resuming production, though many are operating well below full capacity due to social distancing measures, and a high proportion of workers remain on furlough or reduced hours.  

Technical overview

We favor rebounds to resistances at 0.9060 and 0.9100. A break of these last barriers would give an impulsive move higher, paving the way for a more pronounced rally to the resistances at 0.9160 and 0.9300.

The supports stand at 0.8980, 0.8900, and 0.8860. As long as 0.8860 supports, buying on dips favors the trend.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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