Forex Market: EUR/GBP off recent two-month highs as investors await EU, UK factory data for clues on recovery

Following three successive weeks of losses against the single currency, Sterling began the new week on a stronger footing, distancing further from Friday’s two-month lows, as Britain emerges from lockdown. From June 1st residents in England will be able to meet outdoors in groups of up to six, while people who are not from the same household must still observe social distancing.

Yet, Pound gains are likely to be capped, as the common currency was still drawing support from investor confidence about the EU’s recovery fund plans.

In other news, a report by Bild am Sonntag stated that Germany’s stimulus package in support of post-pandemic economic recovery could be worth EUR 75 billion-80 billion. The package may include tax cuts, cash handouts to families, additional financing for small businesses, debt relief for municipalities as well as subsidies for the auto industry. The programme is expected to be announced this week by German Finance Minister Olaf Scholz and Economy Minister Peter Altmaier.

As of 6:58 GMT on Monday EUR/GBP was inching down 0.05% to trade at 0.8990, after touching an intraday low of 0.8971 during the early phase of the Asian session.

On today’s macroeconomic front, French final Manufacturing Purchasing Managers’ Index probably confirmed the preliminary estimate last month, coming in at 40.3, according to market consensus. The preliminary report showed that the sub-indexes of production, new export orders and employment had decreased at a slower rate in May, since some businesses began reopening. The final data by IHS Markit will be released at 7:50 GMT.

The final Manufacturing PMI for Germany probably also confirmed the preliminary estimate in May, coming in at 36.8. Production and new orders dropped at a slower rate in May, after coronavirus-related restrictive measures were eased. However, job shedding rate accelerated. The final data is due out at 7:55 GMT.

At 8:00 GMT IHS Markit will release the final data on manufacturing in the Euro area for May. The final PMI probably confirmed the preliminary estimate, as it is expected to come in at a reading of 39.5 in May. The index pointed to the second-steepest contraction in Eurozone’s factory activity ever recorded, as non-essential businesses closed due to the COVID-19 pandemic. Production dropped at a less steep rate in May, while new orders continued to decrease.

At 8:30 GMT IHS Markit/CIPS will release the final data on UK manufacturing activity for May. The respective Purchasing Managers’ Index probably came in at a final 40.6, according to market expectations, which would confirm the preliminary estimate. It has been the second-sharpest contraction in UK manufacturing activity since February 2009.

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 60.5 basis points (0.605%) as of 6:15 GMT on Monday. It has been the lowest spread since May 27th (60.4 basis points).

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.9010
R1 – 0.9039
R2 – 0.9084
R3 – 0.9114
R4 – 0.9144

S1 – 0.8965
S2 – 0.8935
S3 – 0.8890
S4 – 0.8845