Euro Cross Poised to Break Out
The Euro is attempting to hold its recent breakout against sterling on the heels of Monday’s stronger than expected PMI data in the Eurozone and the weaker than expected manufacturing data released in the UK. Tuesday’s construction PMI in the UK shows that the manufacturing dip might have been an aberration as strength in the UK economy looks robust.
On Tuesday the UK government released their official purchasing managers’ report. The PMI construction index came in at 64.6 for January versus 61.5 consensus and 62.1 in December. This is a new high for the cycle, and follows slightly weaker than expected PMI manufacturing on Monday, which fell to 56.7 from a revised 57.2. No action is expected from the BOE this Thursday. The Bank of England is securely on the sidelines. .
In the EU, producer prices were released and the report showed that inflation remains subdued. Euro zone December PPI was reported close to consensus estimates, printing near -0.8% year over year. Of the central bank meetings this week, the ECB offers the highest odds of a dovish surprise but market analysts remain split over what the central bank is most likely to do.
In one of the more important discussions at Davos, Draghi indicated a willingness to consider buying bank bonds, backed by loans to households and SMEs.
The EURGBP moved above a downward sloping trend line on Monday and continued to hold the same levels throughout Tuesday. Support is seen near the 10-day moving average near 0.8243. Momentum on the currency pair is strong as the MACD (moving average convergence divergence) index generated a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The RSI moved higher with price action reflecting accelerating momentum for the currency pair
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