Forex Market: EUR/GBP trades near one-week highs as German retail sales shrink less-than-expected in April, more macro data ahead

EUR/GBP remained in proximity to fresh one-week highs during early European trade on Friday, after a report by the Federal Statistical Office showed German retail sales had dropped at a slower-than-expected rate in April.

Retail sales decreased at a monthly rate of 5.3% in April, while the median analyst estimate had pointed to a 12.0% drop. In March, retail sales plummeted 5.6%, or the most since January 2007. In annual terms, sales went down 6.5% in April compared with expectations of a 14.3% slump.

In other news, a survey by Lloyds Bank showed that business confidence in the UK was the lowest since December 2008 in May, with its monthly business barometer falling to a reading of -33, suggesting subdued optimism over economic activity and weaker hiring intentions.

“Despite the results partly capturing the period since the government’s announcement of an initial easing of restrictions, trading conditions remain difficult for most firms,” Lloyds economist Hann-Ju Ho noted.

The survey results contrasted other barometers, which have already indicated a slight improvement.

As of 6:37 GMT on Friday EUR/GBP was inching up 0.04% to trade at 0.89931, after touching an intraday high of 0.89972 during the late phase of the Asian session. The latter has been a level not seen since May 21st (0.90002).

On Friday’s data-laden calendar, at 8:00 GMT Italy’s Istat will release the final GDP estimate for Q1. Italian economy is expected to contract 4.8% year-on-year, which would confirm the preliminary data. If so, it would be the sharpest rate of contraction since Q3 2009. In Q4 2019, Italian GDP rose 0.1% year-on-year.

Italy’s preliminary annualized consumer inflation probably went into negative territory in May, according to market expectations, with the CPI falling 0.1%. Consumer prices in the country remained unchanged in April from a year ago. At the same time, Italy’s annual consumer inflation, evaluated in accordance with the harmonized methodology, probably was -0.2% in May, according to expectations, after consumer prices rose 0.1% year-on-year in April. The preliminary data is due out at 9:00 GMT.

The preliminary annualized consumer inflation in the Eurozone probably decelerated to 0.1% in May, according to the median estimate by experts, from a final rate of 0.3% in April. The latter has been the lowest annual inflation since August 2016. The preliminary annualized core CPI, which excludes prices of energy, food, alcohol & tobacco, probably increased at a rate of 0.8% in May, slowing down from a 0.9% gain in the prior month. April’s core inflation has been the lowest since August 2019. Eurostat will release the preliminary CPI report at 9:00 GMT.

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 60.9 basis points (0.609%) as of 6:15 GMT on Friday. It has been the lowest spread since May 27th (60.4 basis points).

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.8982
R1 – 0.9001
R2 – 0.9013
R3 – 0.9032
R4 – 0.9051

S1 – 0.8971
S2 – 0.8952
S3 – 0.8940
S4 – 0.8928