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Andreas Zanin
Analysis | March 9, 2021

KTM FX Weekly: How low can the Euro go against the Pound?

A gain of nearly 1% GBP last week drags the EURGBP price to February lows again. The vaccination race supports the UK assets in the near-term against the EUR. But how low could it go? Currently, we are trading at a 12-month low of 0.8570. Immediate support levels exist at 0.8540 and 0.8470.

The daily relative strength index is on the brink of shaping a higher low pattern from the oversold region, and the weekly RSI is charting oversold. Talking of a short-term view, the outlook is a limited downside view. Ahead of the ECB meeting, a dovish ECB can drag the cross towards the support zone of 0.8540-0.8470.

 FX:

Logged five-month lower closing and retraced 78.6 fibs of the February 2020-March 2020 rally. Finally, we are at the sixth month of witnessing the deceleration trend. Last time, the fall was recorded for six months between April-September 2014 and August-December 2019.

 Vaccination: 

As per the sources, more than 21 million people in the UK have received the COVID vaccine, which is way ahead of other European countries.

At the same time last year, we were recording the daily COVID infections; fast-forwarding to a year, we are now recording daily vaccinated numbers.

Israel started the vaccination program back in December 2020 and is the first country that has given two jabs of Pfizer/BioNTech vaccine to more than 35% of its population. As per the official numbers from Nordea, the UK will be the next country to reach 35%.

Analysts at Nordea said, “The UK will soon reach a key threshold in the vaccination process, which will allow for a quicker than anticipated reopening. The US will soon follow, while continental Europe will lag. We give our best guess on reopening dates in this analysis.”.

So, it is clear that the EU lag UK in the vaccination campaign. Looking ahead from now, what is going to drive the GBP after vaccination hangover? Where can we find growth potentials in the EU or UK? If we take a longer-term view, EURGBP could be the beneficiary.

Macros:

  • UK Manufacturing PMI rose to 55.1 in February, up from 54.1 in January and above the flash estimate of 54.9. The PMI has signaled growth for nine months in a row.

  • UK Services PMI registered 49.5 in February, up sharply from an eight-month low of 39.5 in January.

TECHNICAL OVERVIEW

We are now trading a tad above the near-term support zone of 0.8540-0.8400. So, selling EURGBP at an 11-month low is not wise even though the downtrend is still intact. Look at the daily RSI, trading at 28 with a higher low pattern. So, we remain neutral-bullish as there is a chance of a technical rebound in a bearish trend. A decisive breakout above 0.8730 is needed to confirm the trend.

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

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