The euro initially gapped higher against the Pound on Monday but has since loosened its grip.
EUR/GBP
The euro initially gapped higher against the British pound to kick off the week but has since fallen a bit to continue the overall consolidation that we have seen. It looks like the 50-day EMA has come into the picture to cause a little bit of a headache.
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The euro leg seems to be the big story here as German flash manufacturing PMI hit its strongest level since 2022 on defense spending, and the broader read is Eurozone activity is still expanding in August with manufacturing improving. That keeps the ECB hike story alive, but the higher-for-longer UK rates trade is starting to flex its muscles later in the day.
Keep in mind that there are concerns about the sanctions coming from the United States for the Iranians. Will this tighten the oil supply even further? And the European Union is particularly vulnerable to this, not to mention the fact that the liquefied natural gas coming from Qatar could be affected as well.
Consolidation and Breakdown Risk
Quite frankly, the biggest prints coming out of the United Kingdom have already passed mid-month, thinking about CPI and jobs, so there aren't any Tier 1 UK releases scheduled this week. That in and of itself might help the British pound continue to flex its muscles.
We've been in a downtrend. We pulled back to test the 50-day EMA a couple of times. Now the question is, will we break down below this consolidation, which is basically seeing support near the 0.8530 level?
The German IFO numbers come out tomorrow. That will have a major influence on the euro if it shocks the market. But as things stand right now, this looks very much like a market that just simply wants to continue its consolidation, perhaps with a little bit more of a bearish hint to it than anything else. I'll be watching that 0.8530 level to see if we break down.
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