Eurozone PMI data confirmed the Eurozone economy remains in expansion mode, yet it had little supportive effect on the euro exchange rate complex. Why?
The GBP to EUR currency pair is trading at a ten day best on Tuesday at 1.1632 as Sterling looks to put its post-EU referendum woes behind it.
Bank transfers are seeing rates being offered of between 1.13 and 1.12 while independent providers are quoting between 1.15 and 1.14.
Encouragingly for GBP punters, the gains come despite the Eurozone racking up some pretty decent data.
Today's economic calendar is dominated by the release of preliminary Eurozone PMI data for August.
EU Manufacturing PMI read at 51.8, just below the 52 forecast by economists.
The composite PMI read at 53.3, beating the 53.1 that was forecast.
German PMI read at 53.6, beating the estimate for 53.5.
The data confirms the Eurozone economy continues to grow at a steady tick and would suggest the European Central Bank's stimulus measures are working as planned.
This should be positive for the Euro in the long-term, however, we note no boost to the Euro in today's market numbers.
According to Ilya Spivak, Currency Strategist at DailyFX.com, this is because the euro is more likely to weaken on softer-than-expected data, than to strengthen on better-than-forecast data.
“On balance, results in line or even better than economists’ expectations are unlikely to alter the trajectory of ECB monetary policy, undermining their ability to drive lasting Euro momentum.” Spivak said.
GBP/EUR Technical Outlook: Recovery Sees Trend Line Broken
From a technical perspective the releases could help resolve the current sideways mode in the GBP/EUR pair.
Pound to euro had been recovering quite steadily, breaking above a key trend-line drawn from the May peak, however, since that break it has fallen back down, and now appears range-bound.
Looking at the four-hour chart and we can see that a break above the highs of the initial a-b-c correction at 1.1642 would be a bullish sign and likely to lead to a move higher to 1.1700.
This would also show a reversal in peaks and troughs from down to up, establishing the first building blocks of a new up-trend.
The fact the MACD is above zero is a further buillish indicator.
Alternatively, a move down is also quite possible as the dominant down-trend is still intact, and so a break below the 1.1505 lows would probably lead to move down to the 1.1465 lows.
From a longer-term perspective the pair is probably in the final sub-wave of a bearish Elliot wave which began at the May highs.
This seems to indicate limited further downside, at least in the short-term, however, in the absence of a bullish reversal in price the down-trend remains king and could continue extending ever lower.
For GBP/USD we have possible, partial double bottom pattern forming at the lows.
If so this would indicate a base was forming with a possibility of a relatively strong recovery taking shape if the exchange rate broke above the neckline of the double-bottom at 1.34ish, and a target at 1.36. at the very least.
We are not there yet, and the pair could still start falling again in line with the short-term down-trend.
The shape of the double bottom so far is quite compelling, however, and it is probable that a clear break above 1.3200, would confirm a continuation of the current up-move to 1.3300, putting the finishing touches on the as yet partial double-bottom pattern.
This pair is unlikely to move much, however, until Janet Yellen’s spells out her update stance on monetary policy at Jackson Hole on Friday.
Currently analysts think she will adopt a more hawkish outlook in line with recent utterances from other Fed members, which will have a deleterious effect on GBP/USD, which stands contrary to the upside potential presented by the double-bottom currently under construction on the chart.