Forex Market: EUR/GBP off eight-week highs ahead of ECB Policy Accounts release, UK’s April retail sales drop the most on record

EUR/GBP came off recent eight-week highs and traded within a relatively tight range during the late phase of the Asian session on Friday, as the rally driven by optimism over Europe moving closer to a fiscal union, seemed to have lost traction.

However, the pair trimmed certain part of earlier losses after a Friday report by UK’s Office for National Statistics showed retail sales in the country had plummeted 18.1% in April compared to March, or at the steepest monthly rate on record and far beyond what analysts had expected. The coronavirus pandemic and a round of restrictive measures have led to business closures and caused a 52% drop in sales of fuel, a 50.4% drop in sales of clothing and footwear and a 45.4% slump in sales of household goods during the past month. In March, sales went down at an upwardly revised monthly rate of 5.2%, the ONS said.

April retail sales were 22.6% lower compared to April 2019, following a 5.8% year-on-year drop in March.

Retail sales, excluding fuel sales, decreased 15.2% in April compared to March, also at the sharpest monthly rate on record.

Additionally, an earlier report by GfK Group showed a gauge of consumer confidence in the UK had gone further into negative territory in May, reaching a level of -34, or the lowest since February 2009, as restrictions to curb the spread of the COVID-19 illness and gradual reopening expectations pressured confidence further.

As of 7:01 GMT on Friday EUR/GBP was edging down 0.09% to trade at 0.8951, after touching an intraday low of 0.8943 during late Asian session.

With no relevant macro data or other events scheduled today, Euro traders will likely now focus on a key publication by the European Central Bank. At 11:30 GMT the ECB is expected to release the accounts from its latest policy meeting, held on April 30th. This document offers a fair and balanced reflection of policy deliberations, with its objective being to provide the rationale behind monetary policy decisions and let the public receive a better understanding of the ECB Governing Council’s assessment of macroeconomic conditions. The ECB kept its benchmark interest rate at a record low level of 0%, but reduced the rate on its TLTRO III program and offered a new series of non-targeted pandemic emergency longer-term refinancing operations (PELTROs) to ensure additional liquidity to the financial system.

Bond Yield Spread

The spread between 2-year UK and 2-year German bond yields, which reflects the flow of funds in a short term, equaled 63.7 basis points (0.637%) as of 6:15 GMT on Friday. It has remained close to the five-year low from May 21st.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.8968
R1 – 0.8991
R2 – 0.9023
R3 – 0.9046
R4 – 0.9068

S1 – 0.8937
S2 – 0.8914
S3 – 0.8882
S4 – 0.8851

The pair may find immediate support in the area around the S1 pivot level/today’s low (0.8937-0.8943), and then, at the low from May 20th (0.8912). Resistance may, at first, be expected at the 20-period EMA (0.8959) and then, in the area around the R1 pivot level/May 21st high (0.8991-0.9000).