Breakdown of the latest developments on the global exchanges
Oct 6, 2021, 10:20 AM GMT

EURGBP Recovers Temporarily on Deteriorating Construction Squeeze in the UK

UK's construction squeeze in September the result of faltering global demand

British growth declined in September amidst deteriorating construction activity, jolting the pound. The currency has been stabilising over the last several days, even though the broader market sentiment remains tilted to the downside. Have a look at our previous analysis of the GBPJPY to get a better sense of the broader sterling outlook.

In September, Britain's economic recovery slowed down as construction PMI declined to its lowest level since January 2021. The output squeeze follows a global manufacturing downturn and added to the overall uncertainty prompted by the recent petrol crisis in Britain.

The EURGBP ready to test the 61.8 per cent Fibonacci retracement level from below before the broader downtrend can be resumed

The construction squeeze compounded the overall uncertainty, which exacerbated the pound's struggles in the short term. The EURGBP recovers towards the closest support-turned-resistance level in the wake of the news, as shown on the 4H chart above.

The price action of the pair is likely to probe the 61.8 per cent Fibonacci retracement level at 0.85299 from below, confirming the previous support area (in green)'s new role as a major resistance. The 20-day MA (in red) is about to converge with the 61.8 per cent Fibonacci, making it an even more prominent turning point.

Meanwhile, the recent upsurge of buying pressure is represented by the waning histogram of the MACD indicator. This reading underpins the current development of the bullish pullback.

Unless a decisive breakout above 0.85299 occurs next, the underlying downtrend is likely to continue heading lower towards the next swing low (at 0.84800) in the near future.

UK's construction squeeze triggered by soft demand

According to Markit's latest findings, Britain's construction PMI fell to 52.6 index points in September, missing the preliminary forecasts of 53.9. This measures a sizable dropdown from the 55.2 index points that were recorded a month prior.

UK's construction squeeze triggered by soft demand

This was the third consecutive month of deteriorating construction output owing to uneven demand and activity across the globe. The index shrunk to its lowest level since the beginning of the year.