Eurozone and UK Data (11/20); EUR/GBP Reaction

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Eurozone and UK Data (11/20); EUR/GBP Reaction

Today we had Manufacturing and Services PMIs out of the Eurozone and retail sales data from the UK. Let’s take a look at the data set and the EUR/GBP Reaction.

German Flash Manufacturing PMI (Nov.): 50.0
Forecast: 51.5
Previous: 51.4 (revised from 51.8)
eurzone manufacturing pmi

(click to enlarge; source: forexfactory.com)

Eurozone Flash Manufacturing PMI (Nov.): 50.4
Forecast: 50.9
Previous 50.6
German Flash Services PMI (Nov.) 52.1
Forecast: 54.5
Previous: 54.4 (revised from 54.8)
Eurozone Flash Services PMI (Nov.): 51.3
Forecast: 52.3
Previous: 52.3

Germany is the Eurozone’s manufacturing engine, and its manufacturing PMI has dropped to the level showing neither expansion nor contraction. Germany staved off a recession Q3 but barely. Continuing slide in the manufacturing PMI adds pressure to the ECB to implement QE and could be EUR-negative.

UK Retail Sales m/m (October): 0.8%
Forecast: 0.4%
Previous: -0.4%
UK retail sales came in better than expected, driven by sales of furniture, which can be attributed to the pick up in the housing market earlier this year. Retail sales is a volatile item, so we should contain any bullish expectation for the GBP based on this data set.

EUR/GBP Reaction:
With underwhelming data from the Eurozone and positive data out of the UK, the market can be expected to sell the EUR/GBP.

EUR/GBP 4H Chart 11/20
eurgbp 4h chart 11/20
(click to enlarge)

The 4H chart shows the market reacting bearishly after the data release today. It should be noted that EUR/GBP was already retreating and this is a second push lower this week, marked by a bearish engulfing candle in the 4H chart. In the near-term there is downside risk to 0.7960.

EUR/GBP Daily Chart 11/20
eurgbp daily chart 11/20

(click to enlarge)

Retreating from Key Resistance: We can expect downside risk towards 0.7911-0.7920 area as well because that would be the middle of November’s price action and where the 200-, 100-, and 50-period simple moving averages are clustered in the 4H chart. Some interpret the middle of a range to be the “fair price” and the target for when price bounces off the range boundary.

When we take a look at the daily chart, we can see that EUR/GBP is bouncing off a multi-month resistance area. The market has turned from bearish to sideways, but it has not turned bullish. With a neutral-bearish mode, the multi-month resistance should be respected, and the EUR/GBP has downside risk towards the 0.7910-0.7920 area from the technical perspective. The data set today helps a little from the fundamental standpoint to keep EUR/GBP off the key resistance.

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