The EUR/GBP fell from four-month highs Monday amid a bigger than expected drop in Eurozone investor confidence, while European stocks trended higher on expectations of additional stimulus from the European Central Bank.
The EUR/GBP bottomed out at 0.7299 Monday. It would subsequently consolidate at 0.7311, declining 0.5% or 38 pips. The pair had surged to a high of 0.7379 last week, its highest level since May 7. The EUR/GBP faces immediate support at 0.7304. A break below that level would likely lead to 0.7257. On the upside, initial resistance for the EUR/GBP is likely found at 0.7376, followed by 0.7401.
The EUR/USD was little changed, as North American investors paused to observe Labour Day.
Eurozone investor confidence declined sharply this month, falling to its lowest level since February on concerns about a slowing Chinese economy. The Sentix Eurozone investor confidence index fell to 13.6 in September from 18.4 the previous month. A median estimate of economists had expected a fall to 16.1.
Dr. Sebastian Wanke, senior analyst at Sentix, noted that, “Investors now see the clouds shadowing China as well as the other emerging markets as a major burden for the euro-zone economy, which can no longer be offset by positive performance of its domestic economies themselves or by the US… In this light, investors’ economic outlook can be considered significantly dampened.”
The Chinese government will report on international trade on Tuesday. Exports are forecast to fall 6 percent annually in August after plunging 8.3 percent in July, which prompted the People’s Bank of China to devalue the yuan for the first time in more than two decades.
Beijing will also report on consumer inflation and producer prices later in the week.
European stocks were higher across the board at the start of the week, as the prospect of additional stimulus by the ECB lifted investor sentiment. The FTSE 100 in London added 0.4 percent, while Frankfurt’s DAX climbed 0.6 percent.
The ECB made it clear last Thursday it was prepared to expand its quantitative easing program in the coming months to help support Eurozone inflation and GDP.
The EUR/GBP could face considerable action later this week as the UK Office for National Statistics reports on industrial production, manufacturing production and international trade. The Bank of England will also meet on Thursday to discuss monetary policy and set the overnight rate.