07.01.202000:32 Forex Analysis & Reviews: GBPUSD and EURUSD: Euro and the pound gained strength after service sector reports. However, joyful occasion may be temporary

The eurozone services sector ended 2019 on a positive note. This is evidenced today by the agency HIS Markit. It should be noted that the growth in activity was the most significant over the past few months due to an increase in new orders, the growth of which was observed for the first time since August 2019. However, you should not rejoice in one service sector, as production activity remains at terribly low levels and continues to decline, which also pulls down the composite PMI index, which indicates the stagnation of the eurozone economy at the end of last year. It is unlikely that the growth rate of GDP in the fourth quarter will exceed the figure of 0.1%.

Let's start with Italy. Here, the index of PMI for the service sector rose to 51.1 points in December against the November figure of 50.4 points. The index was projected at 51.0 points.

A similar index of PMI for the French services sector also increased to 52.4 points in December from 52.2 points in November, which fully coincided with economists' forecasts.

It is especially pleasing that the PMI for Germany's services sector continued to grow in December and amounted to 52.9 points compared to 51.7 points in November and a forecast of 52.0 points.

All these indicators made it possible to add a few tenths to the PMI supply managers index for the eurozone services sector, which amounted to 52.8 points in December against 51.9 points in November. However, as I noted above, taking into account the manufacturing sector, the eurozone's composite PMI grew only to 50.9 points in December compared to 50.6 points in November and the forecast was the same 50.6 points. Let me remind you that an index value above 50 points indicates an increase in activity.

We were pleased, if we can say so, with the data on inflation growth in the eurozone. Today it became known that the eurozone PPI producer price index managed to grow by 0.2% in November compared with October, but fell immediately by 1.4% year-on-year. The data completely coincided with the forecasts of economists. If you do not take into account the volatile categories and do not take into account energy sources, then the basic index of producer prices of the eurozone in November remained unchanged and grew only 0.3% year-on-year. Thus, it can be seen that a small inflationary surge is associated only with a rise in energy prices, while other categories continue to remain unchanged, creating problems for the European Central Bank and its economists who believe in a return to inflationary pressure in the first half of this year.

As for the technical picture of the EURUSD pair, the level 1.1210 now looms in front of the bulls, and only from whether a breakthrough will take place in this area, it will be clear whether the upward trend will continue, which is aimed at the highs of 1.1240 and 1.1270. If buyers of risky assets do not cope with their task, a downward correction to the area of support levels 1.1175 and 1.1150 is quite likely.

GBPUSD

The British pound on the basis of indicators on the activity of the UK services sector began to strengthen against the US dollar, but it is not clear how long it will be. Bulls already have problems in the resistance area of 1.3160, a breakthrough of which will provide a direct route to the highs of 1.3120 and 1.3290.

According to the report, the final index of PMI for the UK services sector was revised upward in December. This is directly related to the political situation, which became more clear after the victory of the Conservative Party in the general election in December. According to IHS Markit and CIPS, the PMI for the UK services sector rose to 50.0 points in December from 49.3 points in November. Let me remind you that index values above 50 indicate an increase in activity.

If major players do not support the current upward momentum, a downward correction at the US session is not excluded, and the fate of the upward trend formed at the end of December last year will depend on how the bulls cope with holding levels 1.3100 and 1.3060.