EUR/GBP pops higher towards 0.8600 level

• EUR/GBP has moved above its recent intra-day trading range and is eyeing a test of 0.8600.
• The catalysts of the move is unclear, though there has been plenty of news to keep on top of.

Midway through the European morning session, EUR/GBP saw a bout of buying that has pushed it back towards the 0.8600 level and out of its prior 0.8550-0.8580 range that had persisted over the last few days. The pair is now testing resistance offered by last week’s 0.8595 lows, as well as, of course, the psychological 0.8600 level. At the time of writing, EUR/GBP trades around 30 pips or just over 0.3% higher on the day.

Driving the day

No specific catalysts seemed behind the sudden bout of buying during the European morning, with traders speculating that the move could have been triggered a big buy order/programme going through. Some suggested that a much stronger than expected Eurozone Industrial Production figure for January might be behind euro outperformance. For reference; YoY the rate of Industrial Production growth came in at a surprise expansion of 0.1% (versus expectations for a decline of 2.4%), driven by a faster than expected rate of MoM output growth of 0.8%. ING comments that they “expect industrial production to continue to provide an important counterweight to the services sector, which is still suffering from restrictive measures to curb the spread of the coronavirus… (and) while we do expect GDP to contract in 1Q, manufacturing strength will likely soften the blow”.

That compared to January Industrial Production figures out of the UK earlier in the European morning, which were not as strong; Industrial Production dropped at a faster than expected MoM pace of 1.5%, while Manufacturing Production was down 2.3% MoM. However, January UK GDP data was more positive; the UK economy faired better than expected in January, with economic activity declining just 2.9% MoM versus expectations for a sharper monthly drop of closer to 5.0%. The mixed nature of the data, combined with the fact that it is fairly backward-looking, means it probably was not behind the move higher in EUR/GBP on Friday.

Indeed, any optimism about the Eurozone economy as a result of the stronger Industrial Production figures ought to have been cancelled out by negative news flow regarding the state of the pandemic; in France, the Minister warned that the situation in Paris is particularly concerning, with the infection rate is close pre-second wave levels. Elsewhere, there is talk of a nationwide lockdown in Italy over Easter and German health officials are talking about the fact that the country might be at the start of the third wave of Covid-19.

Elsewhere, ECB sources continue to leak detail of the discussion at this week’s meeting to the press; reportedly there was some sparring over the impact that the just passed $1.9T stimulus package in the US would have on the Eurozone economy. Reportedly, the meeting this week was “fractious”, with the governors from richer, manufacturing-heavy countries coming across as much more optimistic about the prospect for vaccines and the economy's ability to adapt. This comes after separate ECB sources suggested on Thursday that the ECB’s new monthly PEPP purchase target is likely to be lower than $100B per month, but much higher than the $60B in assets purchases in February – recap that the ECB announced on Thursday that it would significantly accelerate the rate at which it is purchasing bonds over the coming quarter, though ECB President Christine Lagarde did not give any specific number as to how much the bank would be buying each month.