27.07.202011:09 Forex Analysis & Reviews: EUR/USD and GBP/USD: Euro and pound to rise due to a sharp jump in gold and decline in the US dollar

The fear that relations between the United States and China will continue to deteriorate supported gold in rising towards the psychological level $ 2,000, and also weakened the rate of the dollar in the market. In addition, many investors began to change their transactions to risky assets, after the release of important macroeconomic reports last Friday. Not only has the trouble in the US labor market helped increase the demand for risk assets, but the hopes for a more active and rapid recovery of the European economy after the coronavirus pandemic encouraged traders to look at risk assets in the trading chart. The upcoming US presidential elections also do not add confidence to the US dollar.

Demand for gold resumed after Chinese authorities ordered the closure of the US consulate in Chengdu as a response to Washington's recent decision to close the Chinese consulate in Houston. It rose the price of gold since last week, which continued today at the Asian trading session, with which traders are now expecting the quote to increase at least to $ 2,000.

Meanwhile, strong data on the eurozone economy helped increase the rate of the euro up to the 20th figure in the trading chart, and at the moment, the bulls have already raised the quote past the 17th figure and are continuing further in the chart. The latest PMI report has shown an impressive recovery in activity in July, but many economists doubt that the current rise will continue in the future, as optimism may be premature and the indicators for fall have already begun to decline again. The modest increase in new orders and weak foreign trade will have a negative impact on the manufacturing sector, and the service industry will be entirely dependent on social distancing measures and controlled outbreaks of new cases of COVID-19.

According to the report, the preliminary PMI of the manufacturing sector in France to 52.0 points in July, against its 52.3 points in June and forecast of 53.2 points. Meanwhile, the preliminary PMI for the services sector jumped from 50.7 points in June to 57.8 points in July, much higher than the forecast of 52.0 points.

As for Germany, the manufacturing sector has finally returned to the point of growth and to 50.0 points in July, against 45.2 points in June with the forecast of 48.0 points. The service sector also recorded a very large jump in July to 56.7 points, against 47.3 points in June.

For the euro area as a whole, the sharp rise in the composite purchasing managers' index (PMI) indicates a good pace of economic recovery in the third quarter of this year. However, such a scenario was drawn by many economists, while the return to pre-crisis values will take at least another two years.

According to IHS Markit, the preliminary PMI for the manufacturing sector of the euro zone was 51.1 points in July, against 47.4 points in June, with the forecast of 49.3 points. Meanwhile, the preliminary PMI for the services sector jumped from 48.3 points June to 55.1 points in July, while the forecast was 50.6. As a result, the composite PMI stood at 54.8 points in July this year, well above economists' forecasts.

The recently published data on the US economy also helped increase demand for risky assets, as the strong reports strengthened investor confidence in the growth of the world economy. According to the report, new home sales in the US market was better than economists' forecasts, increasing by 13.8% in June and amounting to 776,000 homes per year. Such is due to an increase in demand, which was observed when the country lifted its quarantine restrictions. Economists expected the index to rise 3.8% and amount to 702,000 homes a year. Compared to June 2019, sales increased by 6.9%.

The rise in US business activity also indicates a gradual return to life in the aftermath of the coronavirus pandemic. According to IHS Markit, the preliminary composite PMI in July was 50.0 points against 47.9 points in June, in which index readings above 50 indicate increased activity in the sector.

As for the technical picture of the EUR/USD pair, the next target of the bulls 17th figure, the breakout of which will push the euro to new highs at the levels 1.1750 and 1.1810. But if demand for risk assets decline, a large support level will be seen during the correction to the level of 1.1640, where the lower border of the current upward channel also passes.

GBP/USD

The British pound continues to rise amid strong data on UK retail sales, but this does not mean that economic recovery after the pandemic will be V-shaped. Most likely, the data for June are overestimated, as the growth in the indicator was due to spending on purchases on the Internet and reducing other expenses. According to the report, sales in June jumped 13.9% from the previous month.

Activity in the manufacturing and services sector also rose after the country lifted its quarantine restrictions. Hence, the preliminary PMI for the UK manufacturing sector was at 53.6 points in July, up from its 50.1 points in June and forecast of 52.0 points. Meanwhile, the PMI for the services sector jumped to 56.6 points, much higher than its 47.1 points in June and forecast of 51.0 points. Composite PMI was also at 57.1 points in July, from 47.7 points in June.

As for the technical picture of the GBP/USD pair, the pound will continue to rise, as long as the US dollar remains weak in the market. This is because despite the recent indicators, the key influencer is the signing of a Brexit trade agreement, which doesn't have any good news yet. The target of the bulls is now the resistance level of 1.2865, against which new players will bet on the further increase of quotes in the area of highs at 1.2910 and 1.2970. But if a downward correction occurs, support will be noted at the level of 1.2800, and the larger level will be at 1.2760, from where the pair resumed the bullish trend last Friday.