EUR/GBP dives after PPI and PMIs figures from Europe

• EUR/GBP lost nearly 0.42% so far this week and fell to 0.8535.
• July’s EU PPI came in higher than expected, while Services PMI from August came in soft.
• British PMI figures from the same month came in better than expected but remained in contraction territory.
• Tightening expectations remain steady for the BoE.

The EUR/GBP turned south on Tuesday after Services PMIs from the Eurozone from August disappointed investors. On the other hand, the British ones came in higher than expected, benefiting the Pound, while hawkish bets on the Bank of England (BoE) remain steady and provide further cushion to the GBP.

Investors assess mid-tier economic activity data from Europe and the UK

The Producer Price Index (PPI) exceeded expectations in July. The figure came in at -0.5%, higher than the expected decline of -0.6 and beat the previous -0.4%. In addition, the EU  S&P Global and Hamburg Commercial Bank (HCOB) Services PMI  missed the consensus in August at 47.9, lower than the expected figure of 48.3 and lower than the previous 48.3. The German surveys aligned with expectations, with the Services index remaining at 47.3.

As a reaction, tightening expectations on the European Central Bank (ECB) and the German yields remain steady. The 2,5 and 10-year rates are holding their ground at the 3.03%, 2.59% and 2.60% areas with mild gains. Meanwhile,  World Interest Rates Probabilities (WIRP) indicates the odds of a 25bps hike in the upcoming Sep 14, 2023 declined to nearly 25%. For the following meetings, the odds of a 25 bps hike in October and December stand at 45% and 60%, and the hawkish bets on the ECB remaining low leave the door for further downside for the EUR.

On the British Side, Global/CIPS Composite PMI from August exceeded expectations and rose to 48.6, higher than the expected figure of 47.9 but lower than the previous 47.9. Still, it remains in contraction territory. Likewise, the Services survey came in at 49.5, higher than the expected figure of 48.7 and lower than the previous 48.7. WIRP suggest that investors still discount that the Bank of England (BoE) will lift rates somewhere between 5.75-6% in this tightening cycle.

EUR/GBP Levels to watch 

 Upon analyzing the daily chart, bearish bias is evident for the short term for the EUR/GBP cross. The Relative Strength Index (RSI) resides below its midline in negative territory, exhibiting a southward trajectory. This aligns with a negative signal from Moving Average Convergence Divergence (MACD), as its red bars show, underscoring the growing bearish momentum. Additionally, the pair is below the 20,100 and 200-day Simple Moving Averages (SMAs), indicating that on the broader picture, the bears are still in command, and the buyers have some work to do.

 Support levels: 0.8515, 0.8500, 0.8480.

 Resistance levels: 0.8570 (20-day SMA), 0.8590, 0.8600.

EUR/GBP Daily Chart