EURGBP: Why has the EUR to GBP suffered a harsh reversal?

The EUR to GBP pair is little changed today ahead of the important UK and eurozone PMI numbers. The pair is trading at 0.9000, which is sharply lower than this week’s high of 0.9176.

EURGBP falls ahead of PMIs

Earlier this week, we received upbeat manufacturing PMI numbers from the eurozone. The data showed that manufacturers in the region made some significant strides in June as countries started to reopen. Demand and optimism in the sector rose.

Today, Markit will release the important services PMI numbers from the United Kingdom and the eurozone. For some countries, like the United Kingdom, the services PMI number is usually more important than the manufacturing. That is because the sector accounts for more than 70% of the entire economy. The same is true for countries like Spain and Italy.

Analysts polled by Reuters expect the PMI to improve in June. For example, they expect services PMI to have jumped from the previous 29.0 to 47.0. Also, the composite PMI, which also includes manufacturing is expected to jump from 30.0 to 47.3.

The same story is expected to continue in Europe. Analysts expect the services PMI number from the eurozone to increase from the previous 30.5 to 47.3. The composite PMI is expected to jump from 31.9 to 47.5.

Brexit concerns remain

The EURGBP pair has dropped because many investors have started to sound optimistic about Brexit. While the fifth round of talks ended without much progress, they expect the frustration to lead to progress as the December deadline nears.

In a statement yesterday, David Frost, the chief UK negotiator said that he was optimistic that the two sides will make progress in the future.

Some of the new differences that have emerged from the talks are on trade. For example, companies that sell goods into Northern Ireland will need to file paperwork. That will be a major difference from the current situation where no paperwork is needed. This system will be tested using a new technology known as Goods Vehicle Movement Service.

The new system is because of the agreement that Boris Johnson passed earlier this year.

EUR to GBP technical analysis

The EURGBP pair is trading at 0.9000. On the daily chart, this price is slightly below the 61.8% Fibonacci retracement level. (This retracement connects the highest and lowest levels this year). It is also slightly higher than the 50-day and 100-day exponential moving averages. Therefore, a break below the important 0.9000 psychological level will likely see the price continue falling as bears target the next support at 0.8900.

On the other hand, a move above 0.9056 will invalidate this thesis. This price is along the highest level since May 29.

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EURGBP technical forecast

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