The euro rushed to the high of last week, and the British pound gained more than 120 points after news that the EU may soften its position in the Brexit negotiations.
Such rumors began to circulate in the media today. With reference to one of the European diplomats, it became known that the EU is ready to abandon a hard approach to the problem of fishing in negotiations with the UK, which can significantly advance the process, which stalled a couple of weeks ago when negotiators were unable to reach a compromise on several important issues. Now that the hope for more successful negotiations has flickered, traders have begun to be optimistic about the pound, which has declined quite a bit by mid-May. Now it remains to guess whether these rumors have real force or in a few days the GBPUSD pair will fall in the same steep peak, as the details of the expected offer from the EU will be revealed.
Let me remind you that the next round of trade negotiations between the UK and the European Union took place on May 15, and they ended in complete failure. Given the current state of the UK economy, the additional problems associated with post-Brexit trade relations only make the situation worse. Let me remind you that the transition period after the UK leaves the EU ends at the end of this year, and as stated in the EU, it should be extended to continue consultations. However, at the end of last year, British Prime Minister Boris Johnson said that he does not plan to make such a request to European partners, and has not yet changed his opinion.
The pound was also supported by today's statements from the Bank of England that the latest data was better than expected. Bank of England Chief Economist Andy Haldane said that good economic data, which was higher than economists' forecasts, allows us to expect a faster economic recovery. As for interest rates, especially their negative value, according to Haldane, the regulator has not yet considered this issue and has not made any decision. It is worth recalling that the same economist recently stated that the Central Bank may resort to the introduction of negative interest rates. However, it is unlikely that such measures will be effective, since negative rates only make it more difficult to lend, so a zero interest rate will likely be the most effective solution.
As for the technical picture of the GBPUSD pair, a significant breakthrough of fairly large resistance levels indicates the firm intentions of buyers to reverse the downward trend. At the moment, buyers have problems in the resistance area of 1.2340, a break in which will lead to a test of new highs in the area of 1.2430 and 1.2510. If the pound falls after unconfirmed information about EU concessions, support will be provided by the levels of 1.2290 and 1.2200.
EURUSD
Today, an important report on consumer sentiment in Germany was released, which is ahead of schedule. It is already clear that, most likely, in June this year, the mood will significantly improve after the lifting of strict isolation measures and restrictions due to the coronavirus pandemic. According to research company GfK, the leading consumer sentiment index for June 2020 rose to -18.9 points from -23.1 points in May. Economists had predicted that the index for June would be -18 points.
Despite the removal of several restrictive measures, consumer uncertainty remains high enough that it will slow down the economy in the early summer of this year. Most of the problems will be related to the propensity to buy. As indicated in the report, the sub-index of propensity to buy rose to 5.5 from -4.6 points in April, and the gradual resumption of work of several companies will have a positive impact on the propensity to spend. As for other sub-indices, in May, the index of economic expectations rose to -10.4 points, while the indicator of income expectations rose to -5.7 points.
The mood of German exporters has improved slightly after a record fall in April this year, which is also good news. According to the data, the IFO indicator of export expectations for the German manufacturing sector rose to -26.9 points in May from -50.2 points in April. Growth was observed in all key sectors. It is still very early to talk about the return of optimism in the company, but many German exporters, as they say, see the light at the end of the tunnel.
As for the technical picture of the EURUSD pair, so far the bulls have not seen problems with overcoming several key resistance levels, which were discussed in the morning review. Good data continues to maintain demand for risky assets, and the nearest target for buyers of the euro is the maximum of last week in the area of 1.1005. In the case of a downward correction, the demand for risky assets may return after updating the major support of 1.0920.
