- Summary:
- After closing higher on Friday, EUR to GBP gave up all of its gains in today's trading following the disappointing German Ifo report.
The EUR to GBP exchange rate crawled higher on Friday with an 11-pip gain as profit-taking ensued ahead of this week’s BOE rate decision.
PMI Reports from the Euro Zone and the UK
EURGBP initially traded lower to 0.8429 when the euro zone and UK PMI reports were released. Data from the UK showed that both its manufacturing and services sectors are improving. The manufacturing PMI printed higher at 52.9 than its previous reading at 50.0. Meanwhile, its services PMI clocked in at 49.8 from 47.5 in the previous month.
Most of the PMI reports from the euro zone topped forecasts. Only the French services and euro zone services PMIs missed their 52.9 and 52.2 estimates when they printed at 52.2 and 51.7, respectively.
BOE Rate Decision Ahead
Despite the impressive figures from the UK, profit-taking from short EUR to GBP positions may have allowed the currency pair to trade higher on Friday. Remember that the highly-anticipated BOE rate decision is due on Thursday. It is not uncommon for forex traders to reduce their positions ahead of a market-moving event. Consequently, selling pressure on EURGBP waned on Friday.
German Ifo Business Climate Report Disappoints
As for today, however, the EUR to GBP exchange rate is trading lower following the disappointing German Ifo report for January. Data for January clocked in lower than the 97.1 consensus and December’s 97.1 reading at 95.9. This suggests that busine
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EUR to GBP Outlook
On the weekly chart, we can see that EURGBP formed a large bearish candlestick last week to succeed a series of reversal candles at the 23.6% Fib level (drawing from the high of August 11 to the low of December 8).
A closer look at the 4-hour chart, we can see that the currency pair has retraced some of its losses back to the 38.2% Fib level (drawing the Fibonacci retracement tool from the high of January 20 to the low of January 24). If the initial sell-off from today’s disappointing German Ifo report is sustained, we could see the EUR to GBP exchange rate drop to last week’s low at 0.8385. If support at that price does not hold, the next floor will be around 0.8300 where the currency pair bottomed in December 2019.
On the other hand, a bullish close above today’s high at 0.8448 could indicate the presence of buyers. EURGBP may trade higher to 0.8470 and test resistance at the 50% Fib level and falling trend line (from connecting the highs of January 14, January 20, and January 21).