The euro has managed to strengthen its position against the US dollar after reports that indicated the growth of business activity in the euro area in April this year. Despite the continuation of quarantine measures, there was a record increase in production. The service sector has also recovered, having managed to adapt to the current realities.
The IHS Markit report indicated that the composite PMI rose to 53.7 points in April from 53.2 points in March. Economists had expected the indicator to be at 52.8 points. It is important to note the growth and activity in the services sector, where the index jumped to an 8-month high of 50.3 points from 49.6 points in March against the forecast of 49.1 points by economists. A reading above 50 indicates an increase in activity. The manufacturing index did jump to 63.3 points from 62.5 points in March.
And although all the countries of the eurozone managed to demonstrate a fairly good growth in performance, Germany excelled. There, private sector growth slowed in April due to a halt in service activity and a slight increase in industrial production. The composite index fell to 56.0 points in April from 57.3 points in March, according to IHS Markit. The decrease was due to new quarantine restrictions, which were strengthened in Germany in April this year. Many companies in the polls cited the effects of the pandemic and stricter containment measures that prevent them from operating at their full capacity. The purchasing managers’ index in the services sector in April was 50.1 points against 51.5 points in March, while the manufacturing PMI fell to 66.4 points.
Against this background, yesterday’s statements by the President of the European Central Bank after the publication of the decision on monetary policy do not seem so out of place. And although investors are counting on a more active reduction in the bond repurchase program, with the help of which the growth of yields is also constrained, the wait-and-see policy of the European regulator seems to be very appropriate. “Incoming economic reports, polls and indicator data suggest that economic activity may have slowed again in the first quarter of this year, but indicate a resumption of growth in the second quarter,” Lagarde said during a news conference yesterday. “Overall, while the risks associated with the eurozone’s growth prospects continue to decline in the short term, medium-term risks remain more balanced,” the ECB President added.
The euro reacted to all this yesterday with a fall, but today it regained its cheerful mood, having managed to cross the middle of the side channel. From a technical point of view, it is now appropriate to say that the market is on the side of buyers, but it is not completely clear whether the bulls will dare to break through the resistance at 1.2070 today or postpone it for the next week. For the further strengthening of the euro, it is important that the market closes today above the support at 1.2030, as this will allow more active buying in anticipation of the breakout of 1.2070. Going beyond this level would provide a straight path to the highs of 1.2130 and 1.2180. If the pair closes the week below the level of 1.2030, it is quite possible that the pressure on the euro will return and we will still be able to observe the downward correction, which has been much talked about lately. In this case, the nearest stops will be around 1.1940 and 1.1870.
Now I would like to talk a little about economic activity in the UK, which accelerated this month at the fastest pace in seven years. This indicates signs of a strong UK recovery in the summer. The lifting of quarantine restrictions by the government will lead to a more active surge in activity in the future, especially in the service sector.
The latest retail sales figures point to very strong deferred demand from both consumers and businesses. The Treasury and the Bank of England are expecting a sharp recovery from the worst recession in three centuries.
The Office for National Statistics reported today that retail sales in the UK rose much more than expected in March. Retail sales rose 5.4% month-on-month, after rising 2.2% in February. Also, a pretty good report on the revival of the UK private sector was released today. The composite index jumped to 60.0 points in April from 56.4 points in the previous month, according to IHS Markit. The purchasing managers’ index for the services sector was not a record level of 60.1 points after jumping to 56.3 points in March. The manufacturing index also did not lag behind and reached 60.7 points.
As for the technical picture of the pair GBPUSD, it is clearly seen how the buyers still have problems in the area of resistance 1.3892, above which they did not manage to breakthrough. If the bears add to activity, a break of 1.3834 support would lead to a larger downtrend towards the 1.3790 and 1.3750 lows. It is possible to say that buyers have broken the downward correction only after reaching a new high of 1.3945.