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Andreas Zanin
Analysis | May 25, 2021

KTM FX Weekly: BoE will lead the ECB in tightening race.

The EURGBP has reaffirmed support since the other week. The daily RSI is edging gradually, and the oscillator shows a clear bullish crossover suggesting higher prices. The price action has well supported at 0.8600 in mid-May, and a close above 0.8650 would trigger a comeback to the critical resistance spread between 0.8700-0.8720 levels. Given the improving economic look in the Euro, the near-term outlook for EURGBP could be rangebound into June.

In the coming weeks, easing lockdown restrictions in the UK will be the catalyst for the pound. UK Prime Minister Boris Johnson to reveal if lockdown will be lifted on June 21, as per media sources. If restrictions are lifted on June 21, UK assets could outperform further. Last week’s UK May PMIs support our forecast. On top of the PMI data, CPI jumps to 1.5%, hinting that the BoE leads the ECB in a tightening race.

The UK is enjoying an unprecedented growth spurt as the economy reopens, according to the latest flash PMI data from IHS Markit and CIPS, according to IHS Markit.  

Data review: Latest PMI data points supported the pound last week. The flash composite PMI output index, covering both services and manufacturing, rose from 60.7 in April to 62.0 in May. The prior peak of 61.7 had been achieved in October 2013.

 According to IHS Markit’s official release, Flash UK Manufacturing PMI May printed at 66.1, a record high since Jan 1992. And Flash UK Services Business Activity Index May: 61.8, a 91-month high.

CPI rose by 1.5% from 12 months to April 2021, up from 0.7% growth to March.

Looking ahead, UK’s data calendar is empty.

TECHNICAL VIEW

Any decisive breakout above 0.8720 levels may cause strength towards 0.8860. Until such time, wait for support levels. Any violation of the 0.8470 level may cause a clean slide towards 0.8400 and 0.8300 levels.

The weekly pivotal spread between 0.8580-0.8560, below here 0.8530 exists.

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

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