Euro struggles for direction against British Pound despite upbeat German data

• EUR/GBP trades around 0.8575 on Thursday, virtually unchanged on the day despite a string of encouraging German economic releases.
• German consumer confidence improves for September, while recent growth and business sentiment figures also beat expectations.
• A quiet UK economic calendar leaves the British Pound without a significant domestic catalyst this week.

EUR/GBP trades around 0.8575 on Thursday at the time of writing, virtually unchanged on the day with a modest gain of 0.05%. The Euro (EUR) receives some support from a series of encouraging German economic releases, while the British Pound (GBP) lacks a clear domestic catalyst amid a light United Kingdom (UK) economic calendar.

German consumer confidence improves for September. The GfK Consumer Confidence Index rises to -26.6 from -29.4 in August, beating market expectations of a slight deterioration to -29.6.

These figures add to a string of encouraging economic releases from Germany this week. German Gross Domestic Product (GDP) growth was revised higher to 0.3% on a quarterly basis, matching the expansion recorded in the first quarter. On an annual basis, growth was revised to 1% from the previously estimated 0.9%, accelerating from the 0.4% increase recorded in the previous quarter.

Business sentiment has also improved. The German IFO Business Climate Index rises to its highest level in 12 months, with both the current assessment and expectations components exceeding market forecasts. The recent data therefore provides a more encouraging picture of the outlook for the Eurozone’s largest economy.

Investors now turn their attention to the European Central Bank’s (ECB) Monetary Policy Meeting Accounts, due later on Thursday. Traders will scrutinize the document for fresh clues about the interest rate outlook in the Eurozone.

Meanwhile, the UK economic calendar has remained relatively quiet this week, leaving the British Pound with few domestic drivers. Against this backdrop, EUR/GBP remains broadly stable around 0.8575 as traders weigh improving German fundamentals against the lack of fresh UK economic catalysts.

Euro edges higher against Pound as EUR/GBP rebound tests key resistance

Strategists at Societe Generale note that EUR/GBP has “staged a sharp rebound after carving out an interim low near 0.8450 in July,” but that the recovery has “stalled near 0.8585” with the cross now consolidating in a narrow range. They highlight that “a break above 0.8585 would confirm a broader recovery towards the graphical level of 0.8610 representing the low of May and perhaps even towards the 200-DMA at 0.8660/0.8690,” while “the lower boundary of the recent range at 0.8530 may serve as a short-term support.” In the near term, Societe Generale adds that EUR/GBP is “bid at 0.8575 after yesterday’s close above 50dma (0.8559),” with “the July high of 0.8588” identified as the next resistance.

Rabobank’s FX team also looks for range-bound trading, stating that “we expect further range trading in EUR/GBP over the coming weeks, with a mild upside bias later in the year as fiscal realism weighs and BoE rate hike risk is further priced out.” In the context of the “energy price crisis stemming from the Iran war,” Rabobank argues that the current backdrop is “a better outcome than most forecasters had expected.” The bank reiterates that “it remains Rabobank’s central view that the MPC will continue to side-step a rate hike this year,” and warns that “since the market still sees some risk of higher rates this year, steady policy, in line with our view, could undermine the Pound.” Against this policy backdrop, Rabobank says “we maintain a 3-month EUR/GBP forecast of 0.87.”