GBP/USD, EUR/USD Analysis, Eurozone, UK and US PMI Data– Talking Points
- US Dollar may rise vs British Pound and Euro if cross-continental PMI data disappoints
- Risk aversion from fear about a deep global recession could rekindle demand for liquidity
- EUR/USD dips toes below key support as GBP/USD begins to show signs of exhaustion
ASIA-PACIFIC RECAP
US equity futures pointed lower heading into Asia’s Wednesday trading session with APAC equities following a similar trajectory. Foreign exchange markets were relatively quiet. The Reserve Bank of Australia released the minutes from its latest policy meeting, though the content did not appear to elicit a reaction in AUD/USD. Chinese Caixin PMI was released and came in better-than-expected, though that too failed to move markets.
US PMI DATA
A cascade of ISM data will be crossing the wires later today with expectations for manufacturing to show a 44.5 print. ADP employment change data for March is anticipated to show a 150k contraction, which if realized would mark the softest reading since the 2008 financial crash. Weaker-than-expected figures from these could tilt markets into a risk-off bias and increase demand for the highly-liquid US Dollar.
UK PMI STATISTICS
The British Pound may face selling pressure after final readings for industrial PMI data for March is published. That may capture more of the impact of the coronavirus. A soft reading could reinforce recession fears after Fitch Ratings downgraded the UK’s credit rating from AA to AA- with a negative outlook. As I outlined in my piece earlier this week, developed and frontier economies may start seeing similar credit demotions.
EUROZONE PMI REPORTS
The Eurozone will also be releasing final manufacturing PMI for March with expectations of a 47.0 reading. However, given the dire circumstances European officials find themselves in – to such a degree that they are considering triggering the ESM – the report may fall short of forecasts. A weaker-than-expected reading could therefore pressure the Euro, particularly against its US Dollar counterpart.
GBP/USD ANALYSIS
GBP/USD has risen a little over 8.5 percent after bottoming out at a 1985-low. Its recovery can be characterized as bold given how much the exchange rate strengthened over what is a relatively short period of time. However, GBP/USD’s recent price action is more timid, possibly as a by-product of upside exhaustion. This period of digestion may precede a turn lower given the upcoming data event risk.
GBP/USD – Daily Chart
GBP/USD chart created using TradingView
EUR/USD OUTLOOK
EUR/USD rather coquettishly dipped below the 1.0989-1.0981 support range before closing slightly higher. This could indicate a shy inclination to turn lower, which provides behavioral insight into the collective market’s disposition toward the pair’s trajectory – at least in the short term. Looking ahead, if the pair breaks below this multi-layered floor with follow-through, it may open the door for EUR/USD to test 1.0783.
EUR/USD – Daily Chart
EUR/USD chart created using TradingView
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--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com
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