EURGBP turns lower as data shows that Germany is staging a comeback

Summary:
• The EURGBP pair declined after data showed that the German economy was starting to improve after contracting by 2.2% in the first quarter.

The EURGBP pair declined slightly as the market reacted to mixed economic data from Europe. The pair is trading at 0.8937, which is a few pips below last week’s high of 0.9000.

Germany sinks into recession

The EURGBP pair reacted to the weak GDP data from Germany. According to the statistics office, the country’s GDP shrank by 1.9 per cent in April. That was the worst contraction since the 4.7% decline at the height of the financial crisis. The economy contracted by 2.2% on a year on year basis.

The office blamed the contraction to the overall weakness of the economy due to the lockdown implemented by the government. Private consumption fell by 3.2% while machinery investment fell by 6.9%.

Germany survey data mixed

The EUR/GBP also reacted to the mixed survey data from Ifo. In May, business expectations bounced back from the previous 69.4 to 80.1. That was the best performance in two months. In the same period, the current assessment declined from the previous 79.4 to 78.9. Analysts were expecting the data to rise to 80. On another positive sign, the closely-watched business climate rose from the previous 74.2 to 79.5.

These numbers show that optimism in corporate Germany as the country starts to reopen. In a statement, Ifo Institute said:

“Even though companies once again assessed their current situation as slightly worse, their expectations for the coming months improved considerably. Nevertheless, many companies are still pessimistic about their business. The gradual easing of the lockdown offers a glimmer of hope.”

Download our Q2 Market Global Market Outlook

EURGBP technical outlook

On the daily chart, the EURGBP pair formed a reverse hammer pattern on Thursday, which sends a sign that the pair is about to reverse.

The price is between the 50% and 61.8% Fibonacci retracement level. It is also slightly below the important psychological level of 0.9000. Therefore, while the EUR/GBP trend is bullish, there is a possibility that bears will attempt to retest the 50% retracement at 0.8885.

On the flip side, a move below the 50% Fib will see the pair continue moving lower because it will send a signal that bears have prevailed.