- EUR/USD Sees Limited Reaction to GDP
- EU CPI to be Met With Similar Response
- EUR/GBP Awaiting a Breakout
GERMAN GDP RECAP: The flash estimate of Q1 German GDP indicates that the economy contracted 1.7% Q/Q (vs -1.5% expected), resulting in a Y/Y rate of -3.3% (vs -3.6% expected). This comes as little surprise given that restrictive measures had been reimposed throughout Q1. In response, the Euro has very little attention to this backward looking data, particularly with German looking in a lot better shape in Q2 having finally gotten its act together regarding the rollout of vaccines. Elsewhere, EU CPI is scheduled later today, however, this is likely to be another figure that is shrugged off by the Euro as base effects provide a contribution upside risks.
EUR/USD Chart: Daily Time Frame
EUR/GBP: A very quiet week to say the least for EUR/GBP, which has traded in its tightest range since December 2017. In turn, the cross appears to be coiled up for a breakout and in my view, risks appear to be shaping up for more upside for the following reasons:
- Good news largely in the price for GBP with the UK’s vaccine advantage diminishing. Yesterday, Germany vaccinated a record 1.1% of the population in one day.
- GBP heading for its worst month on a seasonal basis
- Political tail risks amid next week’s Scottish Election likely to see GBP exposure reduced
That being said, there are some positives for the Pound to consider. Next week, the BoE will meet and there is a good chance that the central bank could announce a tapering of QE purchases, given that the current pace of purchases is likely to see the asset purchase facility target reached by mid-August, the time at which the next MPR takes place. Elsewhere, UK/German 5Y real yields also point to lower EUR/GBP.
On the technical front, key resistance at 0.8720-30 remains intact and continues to curb rallies. Should EUR/GBP close 0.8735, this opens the door towards the 0.88 handle. On the downside, good support is situated at 0.8660-70, with the 50DMA below at 0.8617.