Forex Market: EUR/GBP set to register best week since mid-May, UK industrial output contracts at record rate in April, GDP shrinks 24.5%

Having touched highs unseen since May 29th on Thursday, EUR/GBP pared gains overnight, but the minor pair was on track to re-test those highs in early European trade on Friday, after a report by UK’s Office for National Statistics (ONS) showed industrial production had contracted at a record monthly rate in April. Overall economic activity for the three months to April also was the lowest on record, ONS said.

UK’s industrial output shrank at a monthly rate of 20.3% in April, much more than what analysts had expected, as a 24.3% slump in manufacturing production contributed the most to that decline. In annual terms, industrial production sank 24.4% in April, again at a steeper rate than anticipated, following another 8.2% drop in March.

UK GDP decreased 10.4% during the three months to April, or the most on record, as restrictions on movement aimed to limit the spread of the coronavirus drastically reduced overall economic activity. The three major sectors – services, production and construction, shrank by 9.9%, 9.5% and 18.2% respectively during the three months to April. UK’s economy contracted 24.5% year-on-year in April alone, data showed.

On the other hand, the country recorded a surplus of GBP 0.305 billion on its trade balance in April, following a revised down 3.956 billion trade deficit in March. Total exports dropped 19.3% to GBP 37.71 billion in April, or their lowest level since August 2010, while total imports plummeted 26.2% to GBP 37.41 billion, or their lowest level since January 2010. Exports to EU countries fell 10.4% in April, while imports from the EU plunged 20.2%.

As of 7:03 GMT on Friday EUR/GBP was gaining 0.28% to trade at 0.8990, after earlier touching an intraday high of 0.8991, or a level not far from Thursday’s two-week high. The minor pair has risen 0.82% so far during the current week, while being on course for its best performance since the business week ended on May 15th.

In terms of economic calendar, Eurostat is scheduled to release its monthly report on Euro Area industrial production at 9:00 GMT today. Total output is expected to shrink at a monthly rate of 20% in April, after decreasing 11.3% in the prior month. In March, durable consumer goods output shrank at a record monthly rate, by 26.3%, while capital goods output dropped 15.9% from a month ago.

Year-on-year, Euro Area industrial production is expected to contract 29.5% in April, following a 12.9% slump in March.

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 58.2 basis points (0.582%) as of 6:15 GMT on Friday, down from 58.5 basis points on June 11th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.8967
R1 – 0.9013
R2 – 0.9061
R3 – 0.9106
R4 – 0.9152

S1 – 0.8919
S2 – 0.8874
S3 – 0.8826
S4 – 0.8778