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How to Trade the GBP/EUR Pair This Week

EUR/GBP
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August 31, 2016 By: , No Comments

GBP/EUR Pair Defies the Laws of Gravity

The GBP/EUR currency pair is currently at 1.1742, up 0.23% or 0.0027. For the year-to-date, the pair is 13.52% down, following a series of no-confidence votes in the GBP throughout Q1 and Q2. But a turnaround has taken place since 16 August when the pair was trading at 1.1519. The performance of the GBP/EUR pair since then has been robust given the pressures being exerted on the UK by the Brexit vote. Over the past 2 weeks the GBP/EUR pair has appreciated by 1.90% overall.

 

What is Driving GBP Strength?

Based on the current economic indicators in the United Kingdom, the numbers do not indicate a need for panic. The GDP (gross domestic product) growth rate was measured at 0.6%, and the unemployment rate is holding steady at 4.9%. The UK inflation rate is 0.6% and the interest-rate is now at the lower rate of 0.25%. The current Debt/GDP ratio in the UK is now 89.2%. Looking at the FTSE 100 index, there is no mistaking the current trading range which is significantly higher than the pre-Brexit era, at 6,821.

 

There are several areas in the business sector that warrant consideration, including services PMI at 47.4, manufacturing PMI at 48.2 and business confidence at -47. All figures below 50 indicate a contractionary economy. Whether or not the UK is officially in bear market territory or a recession will become clearer as the effects of the Brexit decision materialise. The composite PMI figure of 47.5 from July is worrying. There was a 5-point drop from June 2016 when it was at 52.50. It is also the lowest figure on record. This is a troubling development for the UK economy.

 

Short-Term Bulls Rally Around the GBP

the GBP/EUR pair looks likely to make further gains in the coming days. The short-term trend is bullish, and despite pullbacks, the overall momentum favours the sterling. Even if a correction takes place, the currency pair will continue on its short-term uptrend. It is possible that the resistance level at 1.1783 will be broken and that a new resistance level be found at 1.1845. The monthly pivot point for this currency pair is at that 1.1845 level, and if it breaches that the area, further gains are possible. Of course, economic data releases are front and centre this week with the currency pair. The most important upcoming data release is the manufacturing PMI for release on Thursday, 1 September 2016. The July PMI manufacturing data dropped to 48.2 from the June figure of 52.4. This is also the lowest reading in over 2.5 years. This does not bode well for the UK economy, and it acts as a drain on the GBP.

 

Will Consensus PMI Forecasts Dovetail with Actual Figures?

Also important is the construction PMI economic data released on Friday, 2 September. What typically happens in the run-up to the release of potentially bearish data is that currency is sold to guard against what could be negative data releases. Markets are still trying to gauge the financial impact of Britain’s decision to divorce from the EU, and this will slowly start to filter through into manufacturing and construction PMI data releases. Presently, analysts expect the manufacturing PMI data for August to rise at least 0.8 points to 49. If consensus forecasts match with actual figures, the GBP should hold steady against the EUR.

 

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Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.

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