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Andreas Zanin
Analysis | February 9, 2021

KTM FX Weekly: No light at the end of tunnel

  • Trading below a safe altitude
  • Rates and asst purchase unchanged

EURGBP is trading at a 52-week low and has been edging lower for the fourth month in a row. We are keeping a close eye on 0.8750-0.8670, which would mean a retracement of 61.8. Charts says a decisive breakout below 0.8670 can take the cross further to as much as 0.8450 levels.

The lower lows and lower highs are clearly visible, and we would be concerned if EURGBP could push-and hold- above 0.8860 over the next day or two.  

Macros: UK Services PMI signaled the fastest reduction in business activity for eight months, according to the IHS Markit. Besides, UK central bank-maintained the bank rate at 0.1%. And the Bank of England predicts UK’s economy will contract in the current quarter.

“GDP is expected to fall by around 4% in 2021 Q1, in contrast to expectations of a rise in the November Report.”  

Highlights:

  • Rates unchanged at 0.1% as expected and Asset purchases unchanged too.
  • The vote was 9-0 (exp. 9-0).

Tim Moore, Economics Director at IHS Markit, said, “Service providers experienced a steep downturn in business activity due to the third national lockdown in January, although the speed of decline remains much slower than last spring.”

  • UK Manufacturing PMI fell to a three-month low of 54.1 in January, down from December’s three-year high of 57.5.
  • At 39.5 in January, the UK Services PMI dropped sharply from 49.4 in December and signaled the fastest reduction in business activity for eight months.
  • The MPC voted unanimously to maintain Bank Rate at 0.1% and the total- purchase target at 895 billion pounds-which is in line with economists’ predictions. In response to the BoE MPC vote, GBP loves to move higher against the EUR and the USD.

Looking ahead, we will get UK’s December Prelim GDP on Friday.

James Knightley and James Smith at ING said, “All the signs suggest December saw a partial rebound in activity after November’s month-long lockdown. And in fact, this should mean fourth-quarter GDP actually registered a small amount of growth (though this is helped by favorable base effects, given we’re comparing to the third quarter where the economy was still in the process of reopening).”

TECHNICAL OVERVIEW

EURGBP has been moving between two narrowing trendlines and is creating a falling wedge. Finally, the cross is trading pretty much above the major support level. We are waiting for the breakout for upside confirmation.

The bulls needed a strong close above 0.8860 to escape further downfall towards 0.8600-0.8550 levels. Watch how the price action develops around 0.8700-0.8670.

 

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

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