EURGBP, H1 and Daily
The UK’s June Construction PMI unexpectedly rose to a seven-month high of 53.1, up from 52.5 in May. A rise in residential and commercial activity drove the improvement in the headline reading of the survey, while new orders were the strongest since May 2017, bouncing back from weakness in May. Job creation in the sector was the strongest in a year. Overall, the report is encouraging and along with yesterday’s release of the Manufacturing PMI, suggests that the UK economy has stabilised after recent weakness, keeping alive expectations for BoE to hike the repo rate in August.
Sterling has jumped into the second strongest currency spot following the data and amid trade angst. The Pound lifted out of overnight lows against all majors except Aussie, showing a 0.3% gain versus the Dollar and a 0.4% advance against the Yen, and a more moderate 0.2% rise on the Euro.
Cable’s high is 1.3198, which is near the midway point of the range that’s developed over the last two weeks. At the same time, the EURGBP immediately formed a strong bearish candle in the 1-hour chart, breaking below PP level and the 20 and 50-period MA. The pair drifted down to S1 at 0.8833, which has been supporting the pair strongly for 68 consecutive hourly sessions. Hence the pair is likely to rebound from strong Support at 0.8833 back to 0.8860-0.8870 area. Conversely, a break below S1, could open the space for EURGBP down to the confluence of S2 and 200-period MA at 0.8813.
Currently the momentum indicators are struggling to give any positive/rebounding signs, as RSI is sloping below 41 and MACD oscillator fell from positive area down to neutral zone below its signal line.
Meanwhile, the Daily chart strengthens the possibility of a retracement to the downside in the near future, with an evening star pattern nearing confirmation. A negative candle today will be sufficient to argue the confirmation of an “evening star” 3 candle formation (strong bull on Thursday, small/Doji bodies on Friday and Monday, strong bear), but needs to be combined with the break of the strong Support at 200-Day MA at 0.8820 in order to suggest a reversal to the downside at 0.87s.
The long-term Resistance comes at 0.8870. Only a daily closure above this level could suggest that EURGBP is likely to get back in an uptrend and retest March’s highs.
Overall, Sterling remains somewhere between bearish and neutral at prevailing levels. The Brexit negotiation process, which has just six negotiating weeks left, is coming to a head amid a sense that the risk of the UK leaving the EU without a new trade-deal has gone from highly unlikely to increasingly-less-vaguely palpable.
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Andria Pichidi
Market Analyst
HotForex
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