14.07.202016:02 Forex Analysis & Reviews: Outlook for EUR/USD and GBP/USD. Pound sterling continues dropping against US dollar after GDP report

The euro continues its confident rise against the US dollar due to the optimism of market participants concerning the EU summit. The fact is that, during the meeting, the EU leaders may approve the aid plan proposed by the European Commission worth of 750 billion euros. However, the data released today for the eurozone countries is not as optimistic as it seemed earlier.

Germany's inflation figures, which met the forecast, were not very strong. The fact is that the recovery of consumer prices amid zero interest rates is supposed to be quite weak. Moreover, the consumer price data reflects low consumer activity and other economic problems. According to Destatis, in June 2020, consumer prices in Germany increased due to an advance in the price of food and beverages. The data was in line with preliminary estimates. Thus, the consumer price index climbed by 0.6% compared to the previous month, and the EU-harmonized index rose by 0.7%. The figures also met the economists' expectations. Compared with the same period of the previous year, the national index in June increased by 0.9%. Tobacco prices rose the most by 6.2%, but food prices jumped by 4.4% compared to the same period of the previous year.

However, the German economic expectations fell in July. This indicator reflects economic problems and smoother GDP growth in the second half of the year. The expected V-shaped jump will hardly occur and the economy will return to its pre-crisis levels only in 2021.

According to the data published by ZEW research center, in July, the index of economic expectations in Germany fell to 59.3 points from 63.4 points in June. Economists had expected the index to reach the level of 60.0 points in July. However, an increase in the assessment of the current situation looks encouraging for market participants. In July, the corresponding index advanced to -80.9 points from -83.1 points in June. Such dynamic indicates positive changes after a sharp decline during the spread of the coronavirus. This suggests that the German economic recovery will continue, although it will be weaker than initially expected.

Another indicator that should be mentioned today is the eurozone industrial production. Thus, recovery in the industrial sector was not as rapid as many economists had expected. According to the report, in May, industrial production in the eurozone jumped by 12.4% compared to April. However, in one month it was impossible to recoup losses that occurred in April and March of this year. Industrial production grew the most in Italy, where the index jumped by 42.1%.

Judging by the current dynamic of the euro, many analysts believe that it will gain in value, especially after yesterday's statements made by German Chancellor Angela Merkel. She said that she hopes to reach an agreement, but they need to resolve sharp differences.

Let's take a look at the technical analysis of the euro/dollar pair. The bullish momentum is obvious. The second test of the 1.1375 resistance level has already occurred. However, the euro sellers are not very active. The entire focus was shifted to the 14th pattern. If the pair breaks it, it may lead to a larger bullish impulse of risky assets towards the highs of 1.1460 and 1.1520. The single currency may lose ground during the US trading session, if buyers fail to consolidate above 1.1375. In this case, the level of 1.1300 may act as support. However, larger buyers of risky assets will be concentrated around the low of 1.1255.

GBP/USD

The British pound continues to update weekly lows. The pound sterling may again be under pressure. According to the report, the May GDP data was extremely disappointing as the services sector remained almost unchanged and only a small increase was recorded in industry and construction. The UK's economy is consumer-oriented and largely depends on the services sector, whose recovery leads to more rapid GDP growth. It is already clear that hopes for a rapid recovery have not been fulfilled, and the full recovery of the economy will take much more time than expected

According to the National Bureau of Statistics, in May, the UK economy grew by 1.8% while in April, the indicator slid by 20.3%. Compared to May last year, the UK's GDP fell by 24%. The services sector showed the smallest rise. Thus, the indicator increased by only 0.9%.

Let's take a look at the technical analysis of the pound/dollar pair. At the moment, bears are aimed at breaking the support of 1.2511, which will only strengthen the downtrend and push the pair to fresh lows of 1.2450 and 1.2380. Buyers may return to the market only after a confident break of the 1.2565 level. However, such a scenario is unlikely in the near future without good news on Brexit.