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Andreas Zanin
Analysis | July 13, 2021

KTM FX Weekly: Death CROSS-update

The pound dominance over the common currency since last October has been strong on the back of a strong vaccine rollover and leading growth momentum against the eurozone. These two divergence points supporting the UK assets over EZ, and looking ahead, the Bank of England likely to end the QE by the end of this year. However, we don’t expect ECB or BOE to raise rates before the end of 2022.

In continuation to our last week’s death cross commentary, the gap between 50 and 200MA-weekly is getting closer and closer. We have to keep in mind that we are talking about the weekly chart. By late September, Germany is preparing for the election. We are keeping a close eye on this mega catalyst to the European assets.

UK data points from the ONS last week disappointed the pound bulls. But, by the end of the day, GBP sits on top of the ladder against the EUR and the USD as well. Diving into the ONS numbers, UK gross domestic product (GDP) is estimated to have grown by 0.8% in May 2021 but remains below the analyst’s estimate of 1.5%. And also, this is the fourth consecutive month of growth, albeit slower compared with March (2.4%) and April (2.0%), as per the ONS.

On a 3-month average GDP in May, GDP grew by 3.6% in the three months to May 2021, again lower to analysts’ expectations of 3.9%.  According to the official release, UK GDP remains 3.1% below the pre-coronavirus (COVID-19) pandemic levels seen in February 2020. By understanding the numbers, the GDP number was disappointed with respect to expectations and the recent magnitude of the bounce.

Besides, COVID-19 infections are the other pocket to focus on in the UK again. Tie Spector, Principal Investigator of the PREDICT studies and the ZOE Symptom Study app, tweeted that, “Delta has taken over we move away from deaths and think about milder but longer-term symptoms in the vaccinated populations. As we stop, restrictions Long Covid will rise to 1000 per day.”

Coming to the technical view of EURGBP range bound and low volatile conditions suggest we’re getting closer to the trend change. So far, the price capped at 0.8720; besides 0.8500-0.8470 acting as a support layer. A decisive breakdown could open around 0.8400 and 0.8300 levels. And in a deep cut scenario, 0.8200 also possible in weeks’ time.

Flipside, a daily close above 0.8620 could allow the cross to stretch the arms towards 0.8700-0.8720. The real changeover is possible only if the price closes above 0.8720.

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

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