The final report on the US nonfarm payroll comes out on Friday, but the market is still talking about the recent statement of the chief economist of the European Central Bank Philip Lane. In his statement, Lane stressed that it is already high time for the European regulator to think about the euro exchange rate, which is beginning to have a rather serious significance for the eurozone economy. Market participants think that this does not mean that the regulator will soon announce a strong inclination to soft monetary policy. This prompted a number of long positions to be closed earlier this week.
Against this backdrop, weak fundamentals for the euro area have taken on more serious significance, and many traders now expect the most decisive action from the European Central Bank. However, there were also those who thinks that the rate of the euro against the US dollar is important, but this does not mean that now the ECB needs to control the dynamics of the pair. In any case, the influence of the European regulator on the rate of this pair is extremely limited.
The German manufacturing orders report on Friday turned out to be somewhat disappointing. It is clear, however, that the manufacturing sector continues to recover from the sharp contraction seen amid the coronavirus pandemic this spring. The report indicated that orders in the manufacturing sector in Germany increased by 2.8% in July 2020. Economists, however, had expected a more robust growth of 5%. The slowdown in the growth of the European economy, as well as its various directions, did not come as a surprise to traders, as many expected a rollback by the fall after the tumultuous start of the summer period.
The problem remains the same which is the increasing number of COVID-19 cases around the world. Compared to the same period last year, orders in the manufacturing sector in Germany fell by 7.3%.
The current report stated a sharp reduction in domestic orders in Germany, which in general, although oriented to export, still makes us worry. The report indicated that domestic orders fell 10.2% in July, while external orders rose 14.4%.
From a technical point of view, the situation in the EURUSD pair has not changed in any way, and, most likely, the report on the state of the US labor market will still create a greater impact. Bears need to act very actively, as only a break of the intermediate support at 1.1830 will increase pressure on the trading instrument and push it back to the weekly low of 1.1790, where the main struggle for the market will unfold. A breakdown of this range will quickly push risky assets to the lows of 1.1750 and 1.1710, opening up real preconditions for a return to the 16th figure. In the scenario of a weak report and buyers return to the resistance of 1.1880, the bulls can quickly regain a part of the major weekly fall in the euro and return the pair to the levels of 1.1910 and 1.1950.
GBPUSD
The rise in the pound sterling, which was observed at the beginning of the European session, quickly ended after the release of the report that the PMI for the UK construction PMI fell in August 2020. The report indicated that the PMI for the UK construction sector fell to 54.6 points from 58.1 points in July, but remained above 50 points, indicating increased activity. Easing restrictive measures and social distancing measures will support the acceleration of the index in the fall.
However, the solution to the problem with the trade agreement between the EU and the UK will greatly support the growth of the pound sterling. Even a partial agreement can help to gradually strengthen the pound sterling against the US dollar. But given the progress in the negotiations, the risk that an agreement will not be reached by the target date of December 31, 2020, is still very high. And if in the autumn period we can expect a decrease in volatility for the pound, when everyone switches to the presidential elections in the United States, by the end of the year the movements will again begin to be chaotic.
As for the current technical picture of the GBPUSD pair, Thursday's breakout of the major support at 1.3315 led to another wave of the British pound falling. Further direction will be determined after the release of the report on the US non-farm payroll. The breakdown of the next support at 1.3240, which the sellers of the British pound stumbled yesterday, will lead to a further decline in the trading instrument to the minimums of 1.3165 and 1.3060. It will be possible to speak about a significant bid of the bulls for a return to the market only after it has firmly consolidated above the resistance of 1.3380, where sellers of the pound will be especially active.