EUR/GBP slumps as UK scores hat-trick of PMI beats

This was in response to news from the UK that the dominated services PMI beat expectations at 55.1 for June vs. 54.0 expected. The fact it was also more than one whole point above the May reading meant that the pound would react positively to the news.

With the US out celebrating July 4 holidays, it could be a quiet afternoon in the markets. Wall Street is shut and there won’t be any US data to look forward to today. So, any moves in the dollar will unlikely be due to fresh fundamental news out of the US. Today’s data from Europe is already out, too. Not that it had any impact on the euro, the Eurozone final services sector PMI was revised a touch higher to 55.2 from 55.0. In fact, the euro weakened post the data, most notably against the pound. This was in response to news from the UK that the dominated services PMI beat expectations at 55.1 for June vs. 54.0 expected. The fact it was also more than one whole point above the May reading meant that the pound would react positively to the news.

Weather, football success good news for UK economy

The UK economy has now scored a hat-trick of PMI beats with the manufacturing and construction sector PMIs also topping expectations earlier in the week. The news underscores expectations over an August rate hike from the Bank of England, helping to keep the pound supported against her weaker rivals such as the euro. The fact that the England football team has also made it to the World Cup quarter finals and not to mention the beautiful weather here, means pubs and restaurants should perform particularly well for at least another couple of weeks, providing a further short-term boost to the services sector.

EUR/GBP breaks down

From a technical point of view, the EUR/GBP has been stuck inside a very ugly range for several months now, but within this range it has had occasional technically-friendly moves. One such move occurred back in March when an attempt to break above the previous double top high around 0.8910/20 resistance failed. That failed breakout attempt preceded a nice move down which eventually bottomed at 0.8620/5 in mid-April.

Interestingly, a very similar pattern may be unfolding again as highlighted on the chart of the Chunnel, below. If the previous occasion is anything to go by then we could see a similar breakdown in the EUR/GBP going forward. The move may already be in motion as price has broken below the previous double top high of 0.8825/40 which – if conditions were still bullish – should have held as support. As things stand, therefore, the path of least resistance is now to the downside and will remain that way unless and until the EUR/GBP goes back above that 0.825/40 area again.

It should be noted that failed breakout attempts are quite common in trend-less markets and identifying such patterns could sometimes offer nice tradable opportunities. The markets don’t necessarily have to be trending in order to look for trades. It all comes down to knowing what to look for, when to look for it and under what market conditions.


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