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EUR/GBP advances amid GBP weakness post PMIs

The EUR/GBP cross moved higher today as the risk-off flows tend to benefit euro over the Pound.

Volatility has returned to the FX markets, reflecting the continuous sell-off in equities, benefitting the USD while undermining growth currencies such as AUD or NZD.

EU data mixed

In Europe, the preliminary January PMI data showed that the German manufacturing sector expanded notably to 60.5, from 57.4 previously, while the services sector returned above 50.0 and printed 52.2, up from 48.7 in December.

On the other hand, the mood in French sectors worsened, pushing both the PMIs lower month-on-month. The overall EU PMIs also decreased - showing a divergent picture yet again as Germany managed to improve its business, while on the other hand, the weaker EU countries fell further.

The UK PMI data was released later. The manufacturing survey fell from 57.9 to 56.9. The services PMI slid from 53.6 to 53.3. Both numbers came out below expectations.

A resilient economic growth rate in the UK during January masks wide variations across different sectors. Consumer-facing businesses have been hit hard by Omicron, and manufacturers have reported a further worrying weakening of order book growth. Still, other business sectors have remained encouragingly robust, explained Chris Williamson, Chief Business Economist at IHS Markit.

From other news, Germany's Bundesbank released its monthly report, noting that the German economy likely shrunk in the last quarter of 2021 . Furthermore, regarding the inflation outlook, Bundesbank said that price pressures could remain exceptionally high in early 2022 due to surging energy costs.

Nevertheless, the ECB continues to stick its head into the sand, repeating it would not raise rates this year - despite other major central banks tightening their monetary policies notably.

US data deteriorate

From the US data, the US Markit manufacturing PMI for January dropped to 55 from 57.7 in December, according to the preliminary data. Likewise, the services survey crashed, even more, printing 50.9, down sharply from 57.6 previously.

So it looks like the US economy is slowing notably, but the Fed is about to hike rates. Unfortunately, that could not end well.

Daily trend neutral, short-term oversold

Regarding the technical analysis, economists at ING expect the pair to break below 0.83 as the Bank of England (BoE) will hike rates at its next meeting in February.

On the other hand, it seems that the bearish momentum is exhausted, pushing the EUR/GBP cross higher over the last two days, as sentiment in the markets has deteriorated. The next resistance could be in the 0.84750 level, where previous lows are, while the critical level to watch is at the 200-day moving average near 0.8525.

eurgbp technical analysis EUR/GBP daily chart, Source: AuthorΒ΄s analysis, tradingview.com

Marek is a cryptocurrency enthusiast with several years worth of experience in the industry. He has been working with numerous cryptocurrency and FinTech projects, where his main r...

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