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.
(click to enlarge; source: forexfactory.com)
Eurozone Flash Manufacturing PMI (Nov.): 50.4
German Flash Services PMI (Nov.) 52.1
Previous: 54.4 (revised from 54.8)
Eurozone Flash Services PMI (Nov.): 51.3
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%
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.
With underwhelming data from the Eurozone and positive data out of the UK, the market can be expected to sell the EUR/GBP.
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.
(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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