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FX.co ★ EUR/USD and GBP/USD: The pound continues its rally despite bearish signals. The current pace of economic recovery in the eurozone is good, so demand for risky assets is rising.

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Forex Analysis:::2020-07-06T08:17:25

EUR/USD and GBP/USD: The pound continues its rally despite bearish signals. The current pace of economic recovery in the eurozone is good, so demand for risky assets is rising.

The improving data on the services sector of eurozone countries supported risky assets. However, the latest statistics indicate that the coronavirus pandemic has not yet been eradicated, so authorities of some states are forced to return social distancing measures and restrictions to curb the recent surge of COVID-19 incidents.

EUR/USD and GBP/USD: The pound continues its rally despite bearish signals. The current pace of economic recovery in the eurozone is good, so demand for risky assets is...

The latest statistics show that the number of new coronavirus infections in the United States has increased to 45.3 thousand. The report of Johns Hopkins University revealed that over the past 24 hours, 45,283 new infections and 242 deaths have been reported in the country.

Nevertheless, despite the recent surge of coronavirus incidence, the euro was still supported by the data on the service sector which was published last Friday. According to the report, the indices are improving, after declining sharply during the spread of the pandemic. The report of the IHS Markit said that the PMI of Italy's services sector rose to 46.4 points in June 2020, much higher than its 28.9 record in May. Economists forecasted the index to amount to 46.1 points. In France, a similar situation was recorded, in which the PMI for the services sector of the country grew to 50.7 points in June, against its 31.1 record in May this year. It was better than forecasts of economists who expected the index to come out at the level of 50.3 points. Germany also recorded the same growth situation, with the indicator increasing to 47.

However, despite the growth in indicators, many companies still record a decrease in activity, just less aggressive than during the coronavirus outbreak. Many consumers still keep costs at a fairly low level because they are reluctant to take risks during periods of volatility and uncertainty about economic prospects. Nevertheless, the current data on the indicators suggests that in the summer period, the European economy may record a leap, especially after the complete abolition of quarantine measures.

EUR/USD and GBP/USD: The pound continues its rally despite bearish signals. The current pace of economic recovery in the eurozone is good, so demand for risky assets is...

In total, the PMI for the services sector of the Eurozone, according to the report of the IHS Markit, is 48.3 points in June, up from its 30.5 points in May. However, a value below 50 still means a decrease in economic activity. As for Spain, the PMI for the service sector dependent to 50.2 points in June, much better and higher than its 27.9 points in May.

With regards to the technical picture of the EUR / USD pair, the situation has not changed much, but serious activity (especially with the bulls) was noted today during the Asian trading session. Thus, the quotes are now at the level of 1.1300, a breakout from which will give a new impulse that could lead the quotes to the highs of 1.1350 and 1.1410. But if there is no fast movement from the highs of the previous week, then the EUR / USD pair will most likely return again to the level of 1.1245, where it has been all last week. A breakout in this range will quickly push risky assets to a low of 1.1190, where activity from the bulls will be observed again.

GBP / USD

The pound continues to rally despite the number of problems that await the UK economy.

The data published last Friday on business activity in the UK services sector, which continued to decline in June, didn't harm the pound because the decline slowed down quite significantly. According to the report of the IHS Markit, the PMI for the UK service sector rose to 47.1 in June, up from its 29.0 points value in May. The mitigation of quarantine measures, as well as the return of pubs and restaurants in the country last Saturday definitely provided good support to the service sector. However, a value below 50 still indicate a decrease in activity.

EUR/USD and GBP/USD: The pound continues its rally despite bearish signals. The current pace of economic recovery in the eurozone is good, so demand for risky assets is...

The pound also ignored the news that the UK and the EU have completed the next round of negotiations on Brexit. According to reports, the parties failed again to reach a consensus, which indicates that there are serious disagreements between the two parties.

In addition, the United Kingdom has lost the last chance to extend the Brexit transitional period, so it all depends now on whether the representatives of both parties will be able to agree on trade conditions, which will allow maintaining close trade and economic relations between the UK and the EU. However, if the negotiators still fail to "find a common language", then from January 1, 2021, the relations of London and Brussels will be built in accordance with the rules and tariffs of the WTO.

Unfortunately, such is not the only problem of the pound. The current balance of payments, as well as public debt of the UK is still negative, and it will continue to put pressure on the pound in the 2nd half of the year.

Meanwhile, the recently proposed $ 5 billion-worth of aid package is unlikely to provide serious support to the UK economy, especially without additional measures from the Bank of England, which could lower interest rates to a negative level during its meeting in August. Nevertheless, the pound may still receive another bullish momentum this week, after UK Treasury Secretary Rishi Sunak presents on Wednesday his meaningful spending plan in the course of the report on fiscal policy. Most likely, Sunak will announce new measures aimed at mitigating the effects of rising unemployment, which will support the labor market and the economy as a whole.

As for the technical picture of the GBP/USD pair, the resistance level of 1.2530 remains a problem for the bulls, going beyond which will help the quotes update the highs of 1.2610 and 1.2680. But if there are no active purchases on last week's highs, wait for the quotes to test the support level of 1.2440 to make sure that large players are present at this level. Meanwhile, the task of the bears will be to break through the level of 1.2440, as it will lead to a quick sale of the trading instrument in the lows of 1.2385 and 1.2320.

Analyst InstaForex
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