- EUR/GBP continued to be under pressure near session lows after posting its biggest drop in a month the previous day.
- Brexit optimism combined with the euro zone energy crisis weighed on quotes.
- Preliminary PMIs for August suggest bearish data, but ECB vs BoE pattern Good for matching buyers.
- Eurozone consumer confidence, Russian-Ukrainian headlines are also important factors in the new impulse.
EUR/GBP holds ahead ahead of Tuesday’s London open Lows around 0.8450. In doing so, the cross extended the previous day’s pullback from monthly highs as traders awaited quick August PMI readings for the UK, Germany and the euro zone.
The weakness in quotes may also be related to expectations of positive developments on the Brexit front. “Business leaders have warned that the UK government’s plan to tear up part of the Brexit deal with the EU and unilaterally replace the Northern Ireland protocol will create ‘numerous’ new problems,” the Independent said. The message added that the Northern Ireland Business Brexit Working Group, which includes UK Logistics, the CBI NI and the Manufacturing NI, said soaring inflation meant there was an “urgent” need to compromise with Brussels.
Also keeping EUR/GBP sellers hopeful is the energy crisis in the Eurozone. Russia’s unscheduled maintenance of the Nord Stream 1 pipeline has dealt a blow to the troubled euro zone economy amid the energy crisis. That concern intensified as stronger U.S. data suggested aggression from the Fed.
The Bundesbank’s monthly report that the recession is deepening in Germany may also suggest that inflation will continue to accelerate and could reach 10 % above the peak value. Before that, Bundesbank President and European Central Bank (ECB) policymaker Joachim Nagel had said that the ECB must continue to increase the chances of a recession in Germany interest rates, as inflation will remain uncomfortably high through 2023. Instead, German Economy Minister Robert Habeck said, “This is a good opportunity to get through the winter without drastic energy measures.”
moving forward, activity data may provide immediate direction, but given the relatively hawkish stance of the European Central Bank (ECB) than the Bank of England (BOE), further declines are unlikely. In addition, the first reading of the Eurozone Consumer Confidence Index for August will be released later in the day, which may please EUR/GBP traders.
technical analysis
The resistance line before mid-June joins the support line channel for the three-week bulls to highlight 0.8410 as the key level needed to enter EUR/GBP bears. Until then, quotes may make another attempt to break the 50-DMA barrier near 0.8500.
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