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Andreas Zanin
Analysis | March 23, 2021

KTM FX Weekly: Is this the place to sell GBP against the EUR

Time to sell GBP?

The relentless selling of EUR against the pound finally comes to pause at the key support. The cross is now trading at the major support zone and is developing a double bottom pattern between 0.8540-0.8530. But a decisive breakout through 0.8640 needed to confirm the near-term term change.

Currently, we are in the sixth-moth straight decline. Last time, the fall was recorded for six months between April-September 2014 and August-December 2019. As we highlighted a couple of times in our previous articles, this monthly and 1Q closing is the key. Hence, we forecast 0.8900 in Q2 2021.

The series of positive technical developments and previous historical data supports our view. If you are bullish EURGBP into Q2, then 0.8540-0.8400 is the zone you focus on, with a stop loss below 0.8275. We are expecting a bounce-back scenario to 0.8900.

So far, vaccine rollout divergence strengthens the GBP against the Euro. As per the Our World in Data, the UK’s daily rollout of ACOVID-19 vaccinations has been showing significant progress against the EA. But the future reopening of economies likely to offer support to the Euro in the longer term.

https://ourworldindata.org/grapher/daily-covid-vaccination-doses-per-capita?country=BRA~DEU~GBR~USA~ITA~FRA~ESP

  • UBS said, “A likely ramp-up in vaccinations should lead to a reopening of economies before the summer, spurring an economic rebound that should support the euro.”

 Data review: 

Last week, the Bank of England last unanimously kelp the policy rates unchanged. This decision was widely expected and in line with market expectations.

 Highlights:

  • The MPC voted unanimously to maintain Bank Rate at 0.1%.
  • On the back of the vaccination program, UK GDP was projected to recover strongly over 2021 towards pre-Covid levels.
  • As per minutes, BoE communication is a bit upbeat on the local economy.
  • Post BoE meeting, the yield on 10-year gilts fell from 0.90% to 0.819% on Monday.

Looking ahead, the unemployment rate and labor market data will provide color to the UK economy. The minutes of the BoE meeting mentioned, “A further increase in unemployment had been projected over the next couple of quarters.”

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

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