Forex Market: EUR/GBP extends losses in thin trade as German economy shrinks the most since 2009, FSO report shows

EUR/GBP continued to retreat in thin trade on Monday after data showed Germany’s economy had shrunk the most in 11 years, while concerns of an impasse between China and the United States over civil liberties in Hong Kong lessened the appeal of riskier assets.

Final data by the Federal Statistical Office revealed earlier on Monday that German Gross Domestic Product had decreased at a quarterly rate of 2.2% in Q1 2020, while confirming the preliminary estimate. It has been the largest quarterly drop since the first quarter of 2009 and the second sharpest GDP contraction since German unification, as COVID-19-related restrictive measures led to business closures and forced people to remain home bound.

Year-on-year, German economy contracted 2.3% in Q1, according to final data, following a 0.4% growth in Q4 2019.

Meanwhile, Beijing’s intention to impose a national security law on Hong Kong may lead to US sanctions and put Hong Kong’s financial hub status at risk, according to White House National Security Adviser Robert O’Brien.

“The biggest concern is the tension between the United States and China,” Takuya Kanda, general manager of research at Gaitame.com Research Institute in Tokyo, said. “Things were already bad, and it is likely to get worse because of the Hong Kong security law. This supports risk-off trades.”

As of 7:10 GMT on Monday EUR/GBP was losing 0.27% to trade at 0.8936, after touching an intraday low of 0.8931 during the early phase of the European session on light volume.

Coming up on today’s macroeconomic front, at 8:00 GMT the Ifo Institute will report on German business climate in May. The Ifo Business Climate indicator probably improved to a reading of 78.3, according to market expectations, rebounding from an all-time low of 74.3 in April. The sub-index of business expectations plunged to 69.4 in April, while the sub-index of current conditions dropped to 79.5, as the COVID-19 pandemic affected businesses, jobs and overall activity.

Today is the Spring bank holiday in England and Wales. UK financial markets will remain closed.

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 63.2 basis points (0.632%) as of 6:15 GMT on Monday.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.8954
R1 – 0.8978
R2 – 0.8996
R3 – 0.9020
R4 – 0.9044

S1 – 0.8936
S2 – 0.8912
S3 – 0.8894
S4 – 0.8877

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