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Andreas Zanin
Analysis | August 31, 2021

KTM FX Weekly: Expect EURGBP to trade in 0.8400-0.8720 range

The deceleration trend finally enters the support zone. As we noted a couple of times earlier, dip buying is an opportunity with strict stop loss.

  • Recorded first monthly gain.
  • Weekly RSI at 44, oversold, and the oscillator is witnessing a bullish crossover.
  • Weekly RSI is suggesting positive divergence in making the matter of time to take off.
  • Past five-week daily trading pattern suggesting bottom is underway.
  • Support zone spread between 0.8450-0.8400.

In summary, all the above factors are pointing limited downside to bullish. We expect EURGBP to hold the support between 0.8500-0.8400 levels while resistance is visible around 0.8720 levels. Going ahead, wild gyration is expected between the levels.

We are not discounting the fact that GBP is still supportive on the back of vaccine rollover. Beyond that vaccine point, we favor EUR to GBP. This is the base case for our medium-term theme.

Data review:

Last week’s central theme was “Eurozone leads as US and UK growth wanes”.

The eurozone is also benefitting from fewer supply and labor market constraints than the UK and US, where growth slowed sharply due to these shortages, with prices rising commensurately higher as a result.

The eurozone enjoyed the fastest growth of the world’s major economies for a second month running in August, according to the flash PMIs, with growth slowing sharply in both the US and UK while Australia and Japan slipped into deeper downturns, IHS market report last week.

  • Flash UK Manufacturing PMI August: 60.1, 5-month low (July final: 60.4)
  • Flash UK Services Business Activity Index August: 55.5, 6-month low (July final: 59.6)
  • Flash Eurozone Manufacturing PMI at 61.5 (62.8 in July). 6-month low
  • Flash Eurozone Services PMI Activity Index at 59.7 (59.8 in July). 2-month low

TECHNICAL OVERVIEW

The cross is now trading at the major support zone and is developing a double bottom pattern between 0.8500-0.8450. But a decisive breakout through 0.8600 is needed to confirm the near-term term change. We suspect the cross is developing an inverse H&S pattern on the weekly chart. But it is too early to say this.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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