The euro lost ground against its rivals, including the US dollar. The euro weakened considerably on Friday after European Central Bank Chief Christine Lagarde said the central bank was determined to maintain its emergency bond-buying programme to protect the economy. She added that the recovery of the block was uneven. So, it still needs liquidity to get back on track. "We are committed to preserving favorable financing conditions using the PEPP envelope, and to do so until at least March 2022," Lagarde told. "It's far too early and it's actually unnecessary to debate longer-term issues. Our focus in June is going to be on favorable financing conditions for the economy at large and to all sectors," she pointed out. The euro fell immediately after the statements against the greenback as traders expected a slightly different kind of comments. Recently, some representatives of the European Central Bank have suggested starting to dialing back its emergency measures and revert to more traditional forms of stimulus with the eurozone economy rebounding as vaccinations progress. The president of the ECB also did not comment on the recent rise in government bond yields. However, she assured speculators that the central bank is closely monitoring borrowing costs.
Biden gives green light for Nord Stream 2
Last Friday, Republicans criticized President Joe Biden's $1.7 trillion infrastructure spending proposal, saying the revised proposal once again proves that the two parties are on opposite sides of the barricades. Thus, their views are rather different on important issues. "There continue to be vast differences between the White House and Senate Republicans when it comes to the definition of infrastructure, the magnitude of proposed spending, and how to pay for it," Kelley Moore, a spokeswoman for West Virginia Senator Shelley Moore Capito, the lawmaker leading the GOP effort, said. Despite the fact that Biden has cut his ambitious spending plan for infrastructure and the labor market by almost a quarter, it still far exceeds the threshold that is acceptable for Republicans.
Friday's meeting of Republican and Democratic representatives once again proved their disunity, but both parties agreed to continue negotiations on various aspects of the plan. Although Biden's new proposal is $550 billion less than the original $2.25 trillion infrastructure plan, Biden's administration intends to ensure that most of the planned spending is implemented through other legislative mechanisms. The plan also includes $400 billion for elder and disabilities care, a field that has nothing in common with infrastructure according to Republicans.
As for fundamental statistics unveiled on Friday, data on Eurozone private sector activity was released. Yet, this report did not give a boost to the euro. In Germany, an increase in the service sector led to a rise in the overall composite indicator. According to IHS Markit, the index rose to 56.2 points in May from 55.8 points in April while economists predicted 57.1. The expansion of the sector was associated with renewed activity in the service sector amid the easing of some restrictive measures. The Services PMI hit a 10-month high of 52.8, up from 49.9 a month ago. The Manufacturing PMI fell to 64.0 in May from 66.2 in the previous month. Economists had forecast a drop to 65.9.
In France, similar indicators also grew at the fastest pace since mid-2020. The easing of lockdown restrictions has had a positive impact on the economy. Notably, investors ignored the negative data logged at the very beginning of the coronavirus pandemic. Now, they are doing the same thing; they do not pay much attention to the positive indicators. This is due to the fact that investors are more likely to bet on changes related to monetary policy. The Markit France Composite Output Index rose more than expected to 57.0 in May from 51.6 in the previous month. Economists had expected a reading of 53.7.
As for the overall euro area indicator, there was a growth in private sector activity in May, notching the strongest reading in more than three years as economies continued to open up after lockdown restrictions. The composite index for all eurozone countries jumped to 56.9 from 53.8 in the previous month. The Manufacturing PMI index dipped slightly to 62.8 62.9 in April, while the Services PMI totaled 55.1 from 50.5 a month ago. The survey showed that the business outlook improved, reaching a peak. Amid the optimistic outlook for the coming year.
As for the technical analysis of the EURUSD pair, its trajectory primarily depends on whether bulls will be able to break the support area of 1.2160. If not, we can bet on the more rapid growth of the pair in the area of the 220th figure. The breakout of this level will help the pair hit the upper border of the sideways channel of 1.2245. If bears push the pair below the 1.2160 support level, the pair may decrease significantly. In this case, it recommended opening trades on the euro at the lows of 1.2220 and 1.2060.
GBP
The pound sterling managed to strengthen amid positive fundamental statistics and even reach new highs but it failed to consolidate at these levels.
As for the technical analysis of the GBP/USD pair, in order to continue the rally, bulls need to send the pair to the level of 1.4170, which they accidentally missed on Friday afternoon. If so, we can expect a larger uptrend in the area of 1.4230. The pair is likely to touch the highs in the area of 1.4310. An equally important task will be to protect the support level at the 41st figure, which bears have been looking at for a long time. In case of its breakout, the pair is likely to plunge to the lows of 1.4040 and 1.3980.
Today is a very important day for the pound sterling. It may repeat the fate of the euro. The further trajectory of the pound sterling will mainly depend on the results of the Bank of England's monetary policy meeting and the speech of the Governor of the Bank of England, Andrew Bailey. These events are sure to trigger high volatility. If Bailey does not say anything new, the British currency may face strong selling pressure as many expect the Bank of England to gradually wind down its stimulus measures programs in the near future.
Last Friday, the pound sterling advanced amid an upbeat report on the growth of retail sales in the UK in April this year. So, it climbed to new highs. According to the Office for National Statistics, retail sales rose by 9.2% month-on-month after gaining 5.1% in March.
The UK private sector continued to grow at a fast pace in May thanks to the easing of pandemic restrictions and a high level of pent-up demand. According to IHS Markit, the composite index grew to 62.0 in May from 60.7 in April. The figure was in line with economists' expectations. A reading above 50 indicates expansion in the sector.
