08.06.202107:32 Forex Analysis & Reviews: EU threatens UK with tough measures over Brexit non-compliance.

Euro underwent a brief decline on Monday, but afterwards turned around and traded upwards again, thanks to strong reports on EU investor confidence. Clearly, the better-than-expected figure supported risky assets amid low trading volumes.

The slight decrease was caused by Destatis report on factory orders, which unexpectedly fell due to weak domestic demand. The April data said manufacturing orders in Germany dropped 0.2% month-over-month, but excluding large orders, it rose as much as 1.5%.

According to reports, domestic orders slipped by 4.3%, while overseas orders increased by 2.7%. Meanwhile, the manufacturing turnover fell 2.6%.

As noted above, the data put pressure on euro, but it was offset by the strong report on EU investor confidence. According to Sentix, the index rose again this June, hitting 28.1 points. This is the highest value recorded since February 2018.

At the same time, the present situation index climbed to 21.3 points, while expectations fell slightly to 35.3 points. The drop is most likely due to the uncertainty on ECB's future policy. In any case, the inflation barometer remains negative at -42.25 points, which indicates that investors expect inflationary pressures to continue.

Sentix economists also believe that price pressures will persist throughout this summer, so the ECB will not be able to avoid discussion about a much earlier policy change. However, there is little chance that it will happen during the meeting this week, as the central bank will most likely wait for further data before making decisive actions.

With regards to the forex market, the nearest target of buyers is the base of the 22nd figure, where a lot will depend today. Going beyond it will lead to a new wave of growth towards 1.2225 and 1.2250, while a drop towards 1.2155 and below will result in a larger downward correction to 1.2210 and 1.2070.

GBP

Pound fell on Monday, partly due to another increase in COVID-19 cases. Apparently, there is another variant that is spreading in the region, which is 40% more infectious than the previous strains. In view of this, UK Health Minister Matt Hancock said it might be too early to lift quarantine restrictions.

But on the bright side, the gradual easing of restrictions fueled UK home prices to rise at the fastest pace in nearly seven years. The report for May showed that it rose 9.5% year-on-year and by 1.3% month-over-month. Now, the average property price is £ 261,743.

This sharp increase in prices supported the pound, returning it to the previous levels. To be more specific, the buying pressure around 1.4117 pushed the currency to the base of the 42nd figure, where a lot will depend today. Going beyond it and above 1.4200 will lead to a larger jump towards 1.4245 and 1.4310, while dropping below 1.4130 will result in a further plunge towards 1.4085 and 1.4040.

But a collapse will happen only if the EU really resorts to tough retaliatory measures against the UK. Until now, compliance issues on Brexit have not been resolved, so the EU threatened that they may begin punitive actions if the UK does not end unilateral moves and threats.

Negotiations are scheduled this Wednesday, during which both parties will try to look for solutions to prevent further unrest in Northern Ireland. Earlier, the UK called on the EU to reconsider the Brexit agreement, but the latter refused it. Northern Ireland has been a major hot spot in UK-EU relations since the UK left the bloc earlier this year. There have been violent protests against new border checks and bureaucratic customs clearance procedures.