Bullish traders tried their best to keep euro at previous lows after the release of latest data on Germany PPI and account balance of ECB. However, it was not enough because during the US session, sell-offs in euro continued.
Hence, on Monday morning, EUR / USD traded at 1.1880, and then resumed a decline.
Obviously, the strong data on Germany PPI was not enough to keep euro afloat, even though the data for May was the highest record since 2008. Destasis said PPI jumped 7.2% year-on-year, all thanks to the sharp increase in prices for intermediate goods and energy resources. The two rose 10.7% and 14.9%, respectively, while prices for durable goods climbed 1.7%.
But today, euro could rise if Bundesbank releases strong macroeconomic projections. If not, pressure on the currency will continue, which will result in a much deeper collapse in the market.
With regards to the current account balance of the European Central Bank, the report last Friday indicated that the surplus reached € 23 billion in April, from € 18 billion in the previous month. Meanwhile, the apparent trade surplus hit € 27 billion.
The ECB is set to speak later today, but there is a low chance that they will announce a change on monetary policy. Although some still hope for it since the Federal Reserve, in their meeting last week, hinted at a future policy change. Quite recently, the ECB follows all actions of the Fed, so it is possible that they may also consider a policy change.
So far, what ECB analysts promised is the termination of the emergency bond purchase program in March 2022, and the continuation of regular bond purchases until 2023. Interest rates, meanwhile, will rise by 2024, after deposit rates return to zero.
Going back to euro, a lot will depend on 1.1840 because a break below it will result in a further drop towards 1.1760 and 1.1715. On the other hand, if the quote moves above 1.1880, EUR / USD will climb towards 1.1930 and 1.1960.
GBP
Pound slipped on Friday amid weak data on UK retail sales. Aside from that, projections on inflation for this year fell to 2.4%, which pulled inflation expectations for the next twelve months down to 1.9%, and expectations for the next 5 years to 2.7%.
A survey was also conducted, in which 37% of the respondents said rates will remain unchanged over the next twelve months, while 39% said they will rise.
These data show that overall expectations have not changed much, despite the recent surge in inflation. But Bank of England Chief Andy Haldane will most likely continue pointing out the risks of inflation spiraling out of control during the policy meeting this week.
In the last meeting, Haldane was the only one that openly spoke about the growing threat of inflation. He warned UK of its current "dangerous position."
In fact, economic growth may be slowing already because according to the latest reports, retail sales in Britain have already begun to fall, even though quarantine restrictions were partially lifted. The Office for National Statistics said the index dropped 1.4% month-over-month in May, after a sharp 9.2% rise in April. Excluding automotive fuels, retail sales fell 2.1%. And on a yearly basis, retail sales growth slowed to 24.6%.
All UK restrictions are also expected to be lifted today, but the new strain of COVID-19 could interfere with government plans.
Accordingly, all this led to a sharp decline in GBP/USD, which continued the bearish trend. And today, a lot depends on 1.3790 because a drop below it will result in another decrease towards 1.3750 and 1.3680. But if the quote returns to 1.3840, pound will climb to 1.3890 and 1.3940.
