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01.07.202014:48 Forex Analyse & Reviews: EURUSD and GBPUSD: The crisis in the labor market is a crisis in the economy

The euro attempted to grow after the data released on the German economy, as well as after reports on manufacturing activity in the Eurozone, however, it was not possible to achieve support from major players. As a result, the pair again quickly descended to the lows of the week, from which it is once again trying to push off.

Exchange Rates 01.07.2020 analysis

Today, a report was released indicating that retail sales in Germany in May this year exceeded the expectations of many analysts and increased by 13.9% compared to April, where there was a drop in the indicator immediately by 5.3%. Economists had only expected growth of 3.9%. Such a serious discrepancy in expectations and forecasts is directly related to the fact that during the quarantine measures, it was difficult to collect statistics and to give any assessment of the economy. However, it is worth noting an improvement in consumer sentiment, which has a positive impact on spending.

Exchange Rates 01.07.2020 analysis

Data on the German labor market also turned out to be better than economists' forecasts, however, the balance of risks shifted downward. Good indicators were obtained due to the active use of a reduced working day. The number of applications for unemployment benefits in Germany rose in June this year, but was much lower than expected, which is evidence of a slight recovery in the labor market after the coronavirus pandemic. A report from the federal employment agency showed that the number of applications for unemployment benefits in Germany rose by 69,000 in June after rising by 237,000 in May, while economists had forecast that the number of applications would rise by 120,000 in June. The unemployment rate was also slightly better, rising only to 6.4% from 6.3% in May, with a forecast of 6.6%. The number of vacancies in Germany in June was 570,000. However, according to some experts, it is too early to talk about the peak of the crisis in the German labor market. It is expected that the peak unemployment rate will fall just on the figures of 6.5%-7.0%, which corresponds to about 3 million unemployed. Most likely, as soon as companies start to wind down part-time employment programs and switch to full-time work, there will be a technical spike in the indicator.

Exchange Rates 01.07.2020 analysis

As for today's reports on the production sector, they also pleased traders but did not provide significant support for the euro. According to Markit, the purchasing managers' index (PMI) for Germany's manufacturing sector rose to 45.2 points in June from 36.6 points in May. Economists had expected the indicator at the level of 44.6 points.

In Italy, the same index also fell short of the 50-point mark. According to the data, the purchasing managers' index for the manufacturing sector was 47.5 points in June against 45.4 points, although it was forecast at 49 points. Only France managed to get past the 50-point mark, which indicates an increase in activity, and not a decrease, as in other countries of the Eurozone. According to the data, the purchasing managers' index (PMI) for the French manufacturing sector in June was 52.3 points against 40.6 points in May.

In general, it is worth noting an improvement in the situation in the manufacturing sector of the Eurozone in June, however, the mood and activity remain far from the levels at which it was before the coronavirus pandemic. According to Markit, the purchasing managers' index for the manufacturing sector of the Eurozone in June was 47.4 points against the preliminary estimate of 46.9 points and the May value of 39.4 points.

Exchange Rates 01.07.2020 analysis

As for the technical picture of the EURUSD pair, it remained unchanged compared to the morning forecast. The overall situation remains fairly calm. Yesterday's attempt of the bulls to return to the market ended in the middle of the side channel 1.1240, which is a problem. It will be possible to talk about the continued growth of the trading instrument only after the breakout of this range, which will open the way to a weekly maximum in the area of 1.1290. If the bears continue to control the market, then re-return to at least a week in the area of 1.1190 will only increase the pressure on risky assets, leading to their sale in the district of lows 1.1150 and 1.1100.

GBPUSD

The British pound made a sluggish attempt to grow after data on manufacturing activity, which, although it improved in June, showed the first recovery after the coronavirus pandemic, but fully coincided with the forecasts of economists and the preliminary value. The Markit/CIPS report indicated that the final purchasing managers' index (PMI) for the UK manufacturing sector was 50.1 points against 40.7 points in May. Let me remind you that an index value above 50 indicates an increase in the activity.

Exchange Rates 01.07.2020 analysis

Such data did not greatly encourage buyers of the pound, especially after the UK lost the last chance to extend the Brexit transition period. June 30 was the last day when Britain could use the opportunity agreed with the EU to submit a request for an extension of the transition period for the next year. Now, this possibility is no longer available, and it all depends on whether representatives from both sides will be able to agree on trade terms that will preserve close trade and economic relations between the UK and the EU. If the negotiators fail to "find a common language" here, then from January 1, 2021, relations between London and Brussels will be built according to the rules and tariffs of the WTO.

As for the technical picture of the GBPUSD pair, it remained unchanged. There is a lack of active support from the bulls at 1.2390, which may increase the pressure on the pair. This will push the trading instrument to the lows of 1.2320 and 1.2255. The growth will be limited by a larger weekly resistance of 1.2450, the breakout of which will provide access to the maximum in the area of 1.2530.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Jakub Novak,
Analytical expert of InstaForex
© 2007-2021
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