EURGBP to Rise on Greece’s Plan; Spain’s Bank Bailout Request, China’s PMI Lift Risk

EUR/GBP: Fundamental Analysis

The contraction of the Euro Zone’s manufacturing sector in November, pulled down the Euro in the previous European trading exchanges, indicating that the region would struggle to grow in the last quarter of this year. On the other hand, manufacturing activity in the UK contracted less than expected in November, extending support to the Great British pound.

Hopes that Greece would be able to reduce its debts by 2020 increased, after it offered to buy back government securities worth 10 Billion Euros, which is a condition for the country to receive the next tranche of bailout funds from its international lenders. The government said that it would buy back bonds in a Dutch auction, wherein prices start high then fall. Private holders of Greek debt have until Friday to register their interest in participating in the debt buying programme. Fears over Spain likewise eased when the Spanish government formally requested for a bank bailout from the European Union (EU) worth 37 Billion Euros to restructure Bankia, Catalunya Banc, NCG Banco and Banco de Valencia. In the event that Spain asks for a government bailout, the shared currency is seen to rally. Investors are also expected to buy the Euro as China’s manufacturing expanded for the first time in 13 months in November to 50.6 points, adding to signs that the world’s second largest economy is picking up amidst the global economic challenges.

Meanwhile, the Sterling is set to fall on increased appetite for risk. In addition, Britain’s manufacturing sector remains fragile, despite moving closer to stabilization in November. According to Markit Economics, “demand from the domestic market remained subdued, while the level of new export orders deteriorate.” It also added that demand from clients in Europe and US reported weaker inflows. Taking into account all the foregoing factors, a long position for the EURGBP pair is recommended in today’s European session.

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