We saw signs that EUR/GBP was about to break a flag pattern on Monday (6/30). Essentially, the inability to challenge last week’s high suggested the focus has shifted back to the downside, which is in the direction of the prevailing trend. During the 7/2 session so far, we are seeing price clear the flag pattern, and make a new low on the year.
EUR/GBP 4H Chart, 7/2
After consolidating around 0.80 for a couple of weeks and moving south of it this week, the 0.80 level is now a key resistance. If price comes back above it, EUR/GBP could be developing a period of consolidation that would last longer than 2 weeks and range wider 75 pips.
EUR/GBP Weekly Chart, 7/2
The weekly chart shows a very sharp decline for EUR/GBP in 2014. The 2012 low of 0.7764 is in sight.
Producer prices remained negative in May (-0.1%). Low Euro Area inflation continues to provide room for the ECB to add stimulus measures like QE. This prospect has been weighing on the EUR. Employment data in the Eurozone was also tepid this week. On Tuesday (7/1), we saw German unemployment rose by 9K in May. Forecasts called for a drop in joblessness.
Meanwhile, better fundamentals out of the UK is helping the GBP rally across the board. The latest was the construction PMI for June, coming in at a surprisingly hot 62.6 reading, which was a 4-month high. Earlier this week we had UK manufacturing PMI at 57.5, which also beat the previous reading and forecasts.
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