The euro and the pound often trade in tandem against the US dollar. Not this time. The euro is losing ground, and the pound is on the recovery path, leading the way for a big downwards move in EUR/GBP.
The cross is trading around 0.85, a reversal of a big upwards move seen beforehand. What’s going on?
In Europe, a long list of issues still weighs on the euro. The common currency had its time in the sun but is losing momentum. Troubles in Italian banks, uncertainty about the formation of a Spanish government and prospects of the ECB to do more all come back to haunt the euro. And also the reaction to Brexit looms: leaders of Germany, France, and Italy met this week and hadn’t reached a clear path forward.
And what about the same Brexit hurting Britain? Initial signs are not too shabby. The rise in retail sales reported last week was attributed to a sunny July in comparison to a damp June. But if weather played a key role in determining economic activity, it seems that Brexit has been overshadowed. Perhaps it was not such a big deal.
This week is light on data from both sides of the channel, but the most important data points in the euro-zone have been unexciting: a disappointing French manufacturing PMI echoed by a miss in German services PMI. In the UK, the CBI Industrial Order Expectations surprised with a bounce back. So, the soft data that was extremely soft (various surveys) is rising alongside the first evidence from the hard data: the skies are not about to fall.
EUR/USD had already reached 0.8722 earlier this month, and the current price reflects a big fall for a cross that doesn’t go wild too often. Further support awaits at 0.8427 and 0.8350. The cross could be capped at 0.86.
More:
- EUR/USD: En-Route To 1.16 – Morgan Stanley
- GBP/USD: Not Out Of The Woods Yet
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