EUR and GBP: Eurozone producer prices were worse than expected. The pound is ready to break past week lows

Another weak fundamental statistics on the eurozone led to a decline in the European currency in the first half of the day, but the bears have not yet managed to form a larger downward movement in the EUR / USD pair. Many will depend on whether sellers manage to cope with the support level of 1.1435 or not, but more on that below.

Inflation in Italy remains near zero. According to the statistics agency, the preliminary CPI of Italy in January rose by only 0.1% compared with December 2018. On an annualized basis, inflation rose by 0.9%. Economists had expected a preliminary CPI of Italy for January at 0.2% and 0.9%, respectively.

Eurozone producer prices put particular pressure on the euro in the first half of the day, as the economists had fallen more than forecast, which is a bad sign for the European Central Bank.

According to the report, PPI eurozone producer price index in December 2018 fell by 0.8% and grew by 3.0% year on year. Eurozone producer price index for December was projected at -0.7% and + 3.1%, respectively.

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The main fall in prices is associated with a decrease in energy carriers, which in the 4th quarter of 2018 showed a rapid decline. Thus, the basic index of producer prices in the eurozone, which does not take into account the volatile categories, including energy prices, declined only by 0.1% in December and showed an increase of 1.3% on an annualized basis.

As for the technical picture of the EUR / USD currency pair, it remained unchanged compared with the morning forecast. Only a breakthrough of the support level of 1.1430 can lead to a new wave of sales and reduce risky assets in the region of the lower boundary of the downward channel, as well as to the support level of 1.1405 and 1.1378. In the case of an upward correction, the upper limit in the area of 1.1475 will be a good level for the return of new major sellers of the European currency to the market.

The British pound returned to weekly support levels after it became known that the PMI Purchasing Managers Index for the UK construction sector fell to a new 10-month low in January.

According to IHS Markit, PMI for the construction sector in January fell to a critical level of 50.6 points against 52.8 points in December of the past year. The fall is mainly due to a slowdown in employment growth and very low growth in new orders.

Also, negative pressure on the pound has market forecasts associated with the revision of GDP growth in 2019. It is expected that at its next meeting, the Bank of England will leave interest rates unchanged, but will revise the forecast of growth in the UK economy for the worse. The continuing uncertainty around Brexit also affects the British pound rate, which has been in a narrow side channel for quite a while.

The material has been provided by InstaForex Company - www.instaforex.com