Photo - Andreas Zanin
Andreas Zanin
Analysis | July 20, 2021

KTM FX Weekly: 0.8500-0.8470 is offering decent support.

We expect the euro cross will come to give a clear direction by the end of this week as we will get the latest PMIs on both sides. On top of these, June 22nd ECB meeting is another additional factor to expect a clear direction on either side.

So far, vaccine rolls out and policy divergence are the two factors which been supporting the UK assets, comparing to the euro. From here on, dovish ECB could cap the price again. Last week, the Bank of England MPC member Michael Saunders stated that “if activity and inflation indicators remain in line with recent trends and downside risks to growth and inflation do not rise significantly (and these conditions are important), then it may become appropriate fairly soon to withdraw some of the current monetary stimulus in order to return inflation to the 2% target on a sustained basis.”. If you discounted the “if” word, simple the above statement suggests BOE too following tampering footprints.

In the case of ultra-ECB dovish stance, we might see 0.8400 levels by this weekend and 0.8250 by the end of August.

Danske Bank says, “We believe that next week’s meeting will mostly be focused on aligning a new, more concise ‘narrative-based monetary policy statement with the ‘old’ introductory statement, and it will therefore be difficult to read it as either a more dovish or hawkish communication than the June statement.”

ING said, “We still think that eventually, the ECB will reduce the PEPP purchases and increase the APP purchases. However, the new strategy and more dovishness suggest that the total reduction of the monthly purchases in 2022 will be less than previously expected”.

Beyond the July ECB meeting, the euro poised political risk at the end of September, as the German election looms on September 26th. We expect political events often provide a clear direction in FX.

Polls: Opinion polls out of Germany on Saturday showed only small changes, with support rising slightly for the Greens now standing at 18% of the popular vote and CDU/CSU at 28%. The 18% would be enough for the Greens to enter into a coalition with SPD (17%) and FDP (12%), according to Daniel Brødsgaard, the Senior Analyst at Danske Bank.

Data-wise, PMIs on both sides will continue to print higher than expectations, but EURGBP gains will be short-lived. A change in the trend could be confirmed if the price closed above 0.8720. Until such time, continue to stay neutral to bearish.

Data wise, the latest UK inflation numbers heat up further with 2.5% in the ten months to June 2021, up from 2.1% from May; on a monthly basis, CPI rose by 0.5% in June 2021, compared with a rise of 0.1% in June 2020.

Besides, the unemployment rate was down 0.2 percentage points on a quarterly basis but up 0.9pps since Dec-Feb 2020 (before the pandemic).

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

What is your Technical View?

Do you have a different idea? Please leave us a comment and get an answer from our professional analysts

Latest Article
Improve your trading with a True ECN Broker
Trading account overview