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EUR and GBP: the eurozone suffers from weak manufacturing activity. The Bank of England may raise rates earlier than many

The European currency failed to properly recover from yesterday's fall against the US dollar after the publication of reports on industrial activity in the eurozone, which continued to show a slowdown.

According to the data, the Purchasing Managers Index (PMI) for Italy's manufacturing sector rose to 49.1 points in April of this year, while it was projected at 47.7 points. In March, Italy's manufacturing PMI was 47.4 points.

A similar index of Purchasing Managers Index (PMI) for the manufacturing sector in France in April managed to return to the level of 50.0 points, with a forecast of 49.6 points. In March, the manufacturing PMI of France was 49.7 points.

Given the decline in production activity in the eurozone, which occurred directly due to trade conflicts and weak exports, the European currency remains under pressure paired with the US dollar.

According to the statistics agency, the PMI purchasing managers' index for the manufacturing sector in the eurozone grew to 47.9 points in April of this year, while economists had predicted it in the area of 47.8 points. Back in March, the index was 47.5 points. Finding an index below 50 points indicates a decrease in activity.


As for the technical picture of the EURUSD pair, it remained unchanged compared with the morning forecast. Further growth of risky assets is limited by the resistance of 1.1215. Only a return to this level will return new buyers to the market, who are counting on the renewal of major resistance of 1.1260, which yesterday has limited the upward trend. Bears will count on a breakthrough and a return below the support level of 1.1175, which will completely reverse the current upward trend, formed on April 24, and return the trading instrument to the lows of 1.1150 and 1.1110.

All traders' attention in the first half of the day was focused on the decision of the Bank of England on interest rates, which led to only a small surge in volatility but did not allow the bulls to resume pound growth, even despite the fact that the regulator announced a more rapid tightening of monetary policy than previously predicted. However, it is really necessary to understand that while there will be no clarity and any specifics on Brexit, the British regulator will not act. Therefore, it will be possible to talk about real changes in the policy of the Central Bank not earlier than this autumn.

According to the data, the Bank of England left a key interest rate at the level of 0.75% today, saying that, according to its expectations, monetary policy tightening may be required in the coming years, as inflation will rise above the target level. In general, a gradual and limited increase in the key interest rate is projected in the following years.


Economists have also raised forecasts for the UK economy's growth in the coming years, which will certainly lead to increased inflationary pressure. UK GDP is expected to grow by 0.5% in the 1st quarter, but growth is likely to return to 0.2% in the 2nd quarter. Despite this, the Bank of England raised the UK GDP growth forecast in 2019 to 1.5% from 1.2%.

As for the inflation background, it is predicted that by 2021 inflation will be above the target of 2% and will continue to grow.

The technical picture of the GBPUSD pair in the next few trading days. The situation remains on the side of sellers, as the bulls are not yet able to quickly gain a foothold above the resistance level of 1.3060. Only a real breakthrough of this range will allow us to continue the upward trend formed on April 25, which will lead the trading instrument to the highs of 1.3130 and 1.3230. With a decrease in the pound, in the continuation of yesterday's downward correction, one can look at long positions after updating the larger support levels in the area of 1.2990 and 1.2940.

The material has been provided by InstaForex Company -