Euro, British Pound, EUR/GBP Technical Analysis, UK PMI Data, ECB Minutes – Talking Points
- Euro eyeing ECB minutes but volatility may come from growing tension with German court
- British Pound may fall on UK flash PMI data for May as Brexit woes return, haunt GBP
- EUR/GBP approaching key inflection range: will we get a break higher or capitulation?
Asia-Pacific Recap
Market sentiment appeared to have a risk-off tilt as the anti-risk US Dollar and Japanese Yen rose at the expense of the cycle-sensitive Australian Dollar. US equity futures pointed in the same downward direction while Asia-Pacific stocks traded mixed. RBA Governor Philip Lowe gave a speech, warning that monetary policy has its limits and that fiscal measures are crucial in combatting the coronavirus. Read the full report here.
Euro Outlook Ahead of ECB Minutes
It is difficult to say how the Euro will react to the publication of ECB meeting minutes considering most of the attention now appears to be focused on the central bank’s tension with the German high court. It recently issued a ruling that deemed the 2015 asset purchases program and the subsequent growth of the ECB balance sheet to its current size illegal, giving the central bank three months to explain their policies.
The court said that unless such an explanation can be made, the Bundesbank will not participate in the quantitative easing program. ECB President Christine Lagarde defended the central bank’s decision and affirmed her support of the Pandemic Emergency Purchase Program (PEPP). This extraordinary measure by the ECB entails purchasing 750 billion euros of debt this year in order to contain the financial fallout from Covid-19.
If the underlying tone of the minutes strikes an unexpectedly gloomy tone, it could lead to heightened liquidation pressure in the Euro. Investors will be eagerly scanning the pages to find a more detailed outlook on the ECB’s position for its PEPP program. In a recent interview, Mrs. Lagarde made it clear that monetary authorities “will not hesitate to adjust the size, duration and composition of the PEPP to the extent necessary”.
British Pound Braces for UK PMI Data
The British Pound may decline following the publication of flash PMI data for May. Manufacturing, services and the composite reading are expected to print at 37.2, 24.0 and 25.7 print, respectively. While this is far below the neutral 50.00 figure, it is an improvement from the prior month.
Worse-than-expected readings could inspire further rate cut bets from the Bank of England as officials contemplate the use of negative interest rates. Selling pressure in Sterling may also be amplified by growing uncertainty about the outcome of Brexit. Last week, EU and UK officials sent a chilling message about progress – or more accurately, the lack thereof – which subsequently sank the Pound.
EUR/GBP Outlook
EUR/GBP is testing the lower tier of the key inflection range between 0.8986 and 0.9091 (purple-dotted lines) where the pair had previously encountered both upside and downside friction amid market-wide volatility in March. If EUR/GBP shies away from clearing the multi-layered ceiling, a subsequent pullback may ensue. In this scenario, selling pressure may start abating when the pair hits familiar support at 0.8687 (red-dotted line).
EUR/GBP – Daily Chart
EUR/GBP chart created using TradingView
--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter