EURGBP: Ascending channel breakdown leading to a trend reversal?

22 ก.ค. 2022

The UK July PMIs show a slowing in the rate of expansion in both the service and manufacturing sectors. The UK Services PMI Business Activity Index fell to 53.3 in July, down from 54.3 in June, hitting a 17-month low. The manufacturing PMI in the United Kingdom fell to 52.2 from 54.3 in June, reaching a 25-month low.

Capacity constraints due to a lack of materials and employees were the factors behind the slowdown in output growth. However, input cost inflation moderated, new order volumes increased, and private sector employment rose.

The UK PMIs prints in July are also broadly in line with what analysts predicted, and they outperformed peers (such as the EU).

The pound against the dollar (GBP/USD) is flat today. The pound, on the other hand, is gaining ground against the euro (EUR/GBP), as preliminary PMIs readings for the Euro Area already reveal that economic activity contracted in July. This means that the Eurozone may enter a recession before the United Kingdom.

On the EUR/GBP 1-hour chart, a breakdown below the short-term ascending channel is now visible. If confirmed by today's close, this could lead to a short-term bearish reversal for EUR/GBP, with a target of 0.84 (July 13 lows).