Forex Market: EUR/GBP extends losses on Monday as German industrial output shrinks at a record rate in April

EUR/GBP extended Friday’s losses during Monday’s Asian session and kept trading near intraday lows in early European session, after a report by Germany’s Federal Statistical Office showed industrial production had shrunk at a record monthly rate in April.

German industrial production plummeted 17.9% in April from a month ago due to a heavy impact by the coronavirus pandemic, as production of intermediate goods went down 13.8%, that of consumer goods dropped 8.7%, production of capital goods plunged 35.3% and that of energy decreased 7.2%. April’s slump has been the sharpest since comparable series began in January 1991. Analysts on average had expected a 16.8% drop.

The Pound has recently been supported after Bank of England’s Executive Director for Markets, Andrew Hauser, said that interest rates were not likely to enter sub-zero territory in the near-term.

“If the UK goes down the road of negative rates, it would be the first country with a negative current account deficit to do so, putting downward pressure on sterling,” Deutsche Bank economist Sanjay Raja and macro strategist Oliver Harvey wrote in an investor note.

“This could see inflation jump at a time when the Bank is looking to shore up confidence and support the economy through the recovery.”

Meanwhile, Britain now has only a few weeks left to ask for an extension of the current transition period, with little progress been made in Brexit trade negotiations so far.

As of 6:50 GMT on Monday EUR/GBP was edging down 0.17% to trade at 0.8898, after touching an intraday low of 0.8882 during late Asian session, or a level not seen since June 3rd (0.8879).

In terms of economic calendar, at 15:45 GMT today European Central Bank President Christine Lagarde will give introductory remarks at a virtual hearing before the Committee on Economic and Monetary Affairs of the European Parliament.

There are no relevant macroeconomic reports, scheduled to be released on Monday.

Bond Yield Spread

The spread between 2-year UK and 2-year German bond yields, which reflects the flow of funds in a short term, equaled 60.3 basis points (0.603%) as of 6:15 GMT on Monday, down from 61.3 basis points on June 5th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.8935
R1 – 0.8984
R2 – 0.9055
R3 – 0.9105
R4 – 0.9154

S1 – 0.8864
S2 – 0.8815
S3 – 0.8744
S4 – 0.8673