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22.01.2021: EUR on track to end week with gains: outlook for EUR/USD, GBP/USD

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The euro and British pound are likely to end the weekly session with gains. Today’s macroeconomic calendar had no impact on the market sentiment.

Although UK retail sales increased by 2.9% from 2.4%, market participants responded to this news with a decline in the pound sterling. The reason is that the data turned out to be far worse than expected. British retail sales were anticipated to grow by 4%. In addition, investors realize that the pound, trading near a two-and-a-half year high, is obviously overbought. This also undermines the demand for the currency.
Moreover, an additional blow to the pound was dealt by preliminary data on business activity. The flash estimates for the PMI business surveys from IHS Markit for January painted a gloomy picture in the UK. The figures turned out to be well below forecasts. In particular, the services PMI fell to 38.8 from 49.4, while economists predicted 45.1.
Britain's manufacturing activity did not fall as much as expected. However, this did not make a difference. The index dropped to 52.9 from 57.5.
As a result, the composite PMI plummeted to 40.6.

Along the pound sterling, the common European currency started to lose in value amid weak data on retail sales. But then it recovered quite quickly and began a steady rally. Preliminary data on business activity boosted the demand for the euro. Unlike the data from the United Kingdom, business activity in the eurozone turned out to be much better than forecasts. The manufacturing PMI fell to only 54.7. The activity level of purchasing managers in the services sector was down to 45.0 from 46.4, while experts predicted a decline to 44.3.
The composite PMI slipped to only 47.5., which is the reason for optimism about the common European currency.
At the same time, if the data on US business activity meets forecasts, the euro will be able to extend gains and the pound will recoup losses, as the indicators are expected to decrease.

Although the euro/dollar pair showed upside momentum yesterday, its bullish run was limited by the 1.2170 mark. As a result, the price slowed down and settled at the level of 1.2170.
According to the trading chart, the price is still trading upwards near the upper border of the range between the levels of 1.2130 and 1.2170. In this situation, traders should not make hasty decisions but wait for a clear price fixation above 1.2190 on the four-hour chart in order to confirm a buy signal.

The pound/dollar pair’s buyers managed to pull the price up, and the quotes were able to hit a new local high in the medium term. However, traders failed to keep the price above 1.3750. As a result, the price returned to the area below the 1.3700 mark.
According to the trading chart, bulls are still coming under pressure from the area of 1.3700/1.3750. That is why the price made a rebound from it and consolidated below 1.3700.
The pound/dollar pair is likely to continue moving in a medium-term bullish trend in case the price consolidates above 1.3750 on the daily chart.

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