The British pound slightly recovered its position, as no people were willing to sell at the weekly lows below the 39th figure. Yesterday's data on the growth of manufacturing activity came out quite good, however, investors preferred the US dollar. Today, the situation has changed: some traders have recorded profits after an unsuccessful consolidation below the low of last week and are in no hurry to return to the market.
As noted above, the data on the purchasing managers' index (PMI) for the UK manufacturing sector was much better than the forecasts of economists. The CIPS report said that the PMI index rose to 55.1 points in February from 54.1 points in January 2021, while economists had expected the index at 54.9 points. A reading above 50 points indicates growth in the sector. And although new orders increased slightly - the prospect of improving domestic demand and export direction creates a fairly good potential for growth in the future. The situation in the production sector was overshadowed by a failure in the supply chain. There was also an acute shortage of raw materials. Business optimism rose to a 77-month high in February this year as more than 63% of companies reported that they expect production growth in just a year.
House prices in the UK rose in February this year, contrary to the forecasts of economists, who expected them to slow further. According to the Nationwide Building Society on Tuesday, the house price index rose by 6.9% year-on-year after rising by 6.4% in January. Economists had expected the index to decline 5.6%. Compared to the previous month, the HPI index rose to 0.7% after falling 0.2% in January. The average house price in the UK in February was a record 231,061 pounds. And while the era of low-interest rates won't end soon, demand is starting to drive prices up again. Many real estate agencies said that the data released was a surprise.
As for the technical picture of the GBPUSD pair, much will depend on whether the buyers will be able to take control of the support of 1.3905 or not. If so, we can expect a larger recovery of the trading instrument in the area of the highs of the 40th figure and even higher - in the area of 1.4060. If not, the pressure on the pound will increase in the near future, which will lead to an update of the lows in the area of 1.3840 and 1.3770.
The European currency today partially recovered its position against the US dollar, even despite a rather weak report on retail sales in Germany and unremarkable inflation in the eurozone.
According to the EU agency Eurostat: the consumer price index rose by 0.9% year-on-year, which is fully in line with economists' expectations. Inflation is in positive territory for the second month in a row, which is good news for the European Central Bank, which expects its growth in the near future. Core inflation, which does not include prices for energy, food, alcohol, and tobacco, was at 1.1%, up from 1.4% in January. The ECB's target level is around 2.0%. The data was also in line with economists' expectations. Inflation is expected to temporarily exceed the 2.0% level by the end of this year. However, this is not the main headache of the European regulator right now. Bond yields are what the central bank should be concerned about right now. "The European Central Bank can and must counteract any unjustified increase in bond yields that threatens to undermine the eurozone economy," Bank of France Governor Francois Villeroy de Gallo said yesterday. His comments can be put on a par with recent statements by other ECB officials who are concerned about the fact that investors continue to bet on a tightening of monetary policy conditions in the near future. Last week, the European Central Bank noticeably slowed its bond purchases, which runs counter to its recent statements. Yields are being boosted by a global sell-off in long-term government bonds as investors wait for higher rates after policy tightening. Interestingly, as part of the latest purchases, the ECB purchased bonds worth 12 billion euros, after 17.2 billion euros a week earlier. It turns out that we say one thing and do another. This is not a reason for investors to make sure they are doing the right thing.
As noted above, German retail sales led only to a temporary decline in the euro against the US dollar and helped the major players to lock in profits. According to Destatis, retail sales in Germany declined for the second month in a row and fell by 4.5% every month. Economists had expected the index to fall by only 0.3%. In December, sales fell by 9.1% at once. On an annualized basis, sales fell 8.7%, while economists had a forecast growth of 1.3%. Such results are explained by the continuing economic lockdown, which is a forced measure due to COVID-19.
Last week, it became known that Germany is preparing to exit the quarantine regime, however, it is too early to rejoice. Chancellor Angela Merkel said that the fight against the outbreak of coronavirus in Germany is bearing fruit and she will consider lifting quarantine measures in the near future, despite the recent resumption of the number of infections. Angela Merkel predicts that the level of morbidity in determining the policy of the pandemic in the next few months will reach its target value. Let me remind you that initially, it set a threshold of 50 cases of infection per 100,000 people, which should be maintained for one week. This threshold has now been lowered to 35, which will begin lifting restrictions and quarantine measures. At the moment, the average seven-day morbidity rate in the country is 62.6. "Additional coronavirus tests would allow the Ministry of Health to create a so-called "buffer" so that the government can get the desired result of the incidence of 35 people," Merkel said during a speech in Berlin. The strict restrictions, which were introduced in November last year, have a very strong impact on business and the public, which has recently been increasing in favor of easing the restrictions. Merkel is taking a more cautious approach and plans to meet tomorrow with the leaders of the 16 federal German states to develop a comprehensive strategy for opening up the economy.
As for the technical picture of the EURUSD pair, to break the downward trend, buyers need to return to the control of the support of 1.2040. Consolidation at this level will lead to a larger upward correction in the area of the 21st figure, above which the area of 1.2140 is visible. Until the moment when trading is conducted below the level of 1.2040, we can expect a further decline in the trading instrument to the support area of 1.2000. More persistent sellers will expect to update the low of 1.1960.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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