EUR/GBP bulls looking at 0.8900 next week, Bank of England looms

• Both the Eurozone and the United Kingdom have seen a string of weak macroeconomic data but additionally weighing on GBP are the uncertainties related to the Brexit and Theresa May’s leadership.
• Next week on Thursday The Bank of England will reveal whether they raised interest rates or not but according to the recent macroeconomic data and the dovish ECB’s officials rhetoric the chances are very small.

The EUR/GBP is trading at around 0.8834 virtually unchanged on Friday as the first week of May is coming to a close.

Earlier in the week on Monday, the German Harmonized Index of Consumer Prices year-on-year in April came below estimates at 1.4% versus 1.5% forecast by analysts. Mid-week on Wednesday, the preliminary reading on the Eurozone Gross Domestic Product for the first quarter annualized came in- line with expectations at 2.5% from 2.7% seen previously. On Thursday, the inflation in the Eurozone with the preliminary Core Consumer Price Index in April annualized decelerated to 0.7% from 1% in March below the 0.9% expected by analysts. The end of the week on Friday saw the PMI monthly Composite Reports on Manufacturing and Services, released by Markit Economics, decelerate at 55.1 while 55.2 was forecast by analysts while the retail sales y/y to March also came below estimate at 0.8% versus 1.9% forecast. All-in-all the Eurozone data came mainly below expectation. 

On the other hand, in the United Kingdom on Tuesday the Markit Manufacturing PMI (Purchasing Managers' Index) in April decelerated to 53.9 versus 54.8 expected by analysts. Mid-week on Wednesday the PMI construction in April accelerated to 52.5 versus 50.5 forecast while on Thursday, the Markit Services PMI in April disappointed at 52.8 vs. 53.5 expected. The data this week is rather weak and follows the string of bad numbers seen in recent weeks with lower inflation, GDP and wages. Only about three weeks ago investors were expecting a Bank of England rate hike on May 10 but now the odds have become really small. 

The GBP is also further negatively affected by the political situation regarding the Brexit and UK’s customs as Theresa May is facing a crisis as her Cabinet is at risk of collapsing. 

EUR/GBP 4-hour chart  

The trend is bullish and resistances are priced in at the 0.8840 supply level and at the 0.8900 figure while supports are seen at the 0.8782 and 0.8682 swing lows