FX.co ★ EURUSD and GBPUSD: Fundamental data slightly spoiled the mood of buyers of risky assets. The chance of growth for the pound remains quite high

Today, data on manufacturing activity in the Eurozone countries were released, which slightly quieted the ardor of bulls betting on further strengthening of risky assets. The euphoria from the European Commission's proposed support plan for the European economy last week for 750 billion euros will continue to drive the bulls. Now the important question is whether the EU leaders will agree on the stimulus package since the north and south have opposite views on this issue. Of course, if the agreement is adopted, then from the market, the momentum towards fiscal consolidation will increase the stability of the Eurozone and support the European currency in the medium term.

The easing of quarantine restrictions is supporting the manufacturing index, which is groping the bottom after a shocking fall in April this year. Many companies are resuming their work, which will have a positive impact on the indicators in the future and return the economy to normal. A report from the statistics agency IHS Markit indicated that the purchasing managers' index (PMI) for the Italian manufacturing sector in May jumped to a level of 45.4 points against 31.1 points in April, with a growth forecast of 37.0 points. Italy, perhaps, was the only one of the countries in the Eurozone where the indicator showed such active growth. For example, in France, the purchasing managers' index for the French manufacturing sector rose to 40.6 points in May, after 31.5 points in April and a forecast of 40.3 points.

But the leading economy of the European Union, Germany, is not doing as well as many expected. According to the report, the purchasing managers' index (PMI) for the German manufacturing sector in May rose only to 36.6 points, which was even worse than the forecasts of economists, who expected an indicator of 36.8 points. In April, the PMI showed a drop to 34.5 points.

As for the Eurozone as a whole, the final value of the index turned out to be worse than the preliminary value, which slightly moderated the growth of the euro in the short term. According to the IHS Markit report, the purchasing managers' index (PMI) for the manufacturing sector in May 2020 fell to 39.4 points against 39.5 points (preliminary data). In April, the index was at 33.4 points, indicating a sharp decline in activity in the sector. Economists had expected the index to remain unchanged in May.

As for the technical picture of the EURUSD pair, nothing has changed significantly. An unsuccessful attempt by the bulls to break above the resistance of 1.1140 left everything in its place. Only if this area is broken, the bullish momentum in risky assets will return, which will lead to a test of new highs of 1.1230 and 1.1340. If the pressure on the trading instrument begins to gradually increase, a downward correction to the support area of 1.1085, and then a test of a larger level of 1.0990, is not excluded.

GBP

The British pound also attempted to grow against the US dollar for the same reason as the European currency, after data on manufacturing activity, which continued to decline, although at a less noticeable pace, was released. Problems with the growth of the pound remain, and they are related to the Brexit negotiations, as unexpected progress on them in the near future should not be expected. However, the pound is supported by the Bank of England's refusal to introduce negative interest rates, which Governor Andrew Bailey made clear last week.

As for negotiations on trade relations between the EU and the UK, they will resume tomorrow, but no one is waiting for a significant breakthrough in this direction, but also does not rule out the possibility of agreeing on Brexit at the last minute.

As for activity in the UK manufacturing sector, as noted above, it continued to decline. Problems related to coronavirus and quarantine measures are putting pressure on the sector. According to the report by IHS Markit and CIPS, the final purchasing managers' index (PMI) for the UK manufacturing sector in May 2020 was 40.7 points against the preliminary estimate of 40.6 points and the April value of 32.6 points.

As for the technical picture of the GBPUSD pair, the bulls' problems with the level of 1.2420 remain quite serious. Only a break in this range can trigger the demolition of bears' stop orders, which will lead to the exit of the trading instrument to the highs of 1.2470 and 1.2550. If the pressure on the pound returns, the activity of bulls will be noted in the area of 1.2235, but larger buyers will prefer to postpone entering the market until the update of the minimum of 1.2075.