KTM FX Weekly: Pound is the only currency in the G10 block firing at all time frames

The pound outperformed the euro for the third month in a row but still holding parallel support. Since April, the cross manages to trade within the 250 pips range, with a lack of fresh triggers bother the sides.

The pound is the only currency in the G10 block firing at all time frames, so do its crosses GBPAUD and GBPNZD.

Fixed income:

10year yields continue to fall in Germany and UK, touched their lowest level since February 2021. The German bund 10-year yield fell to -0.460% despite last week’s better than expected inflation data. And UK Gilts for the same period fell below 0.6% at the end of July.

Bank of England:

Looking ahead, all the eyes are focusing on the Bank of England on Thursday. The market participants nor we expect a significant change in the policy settings. Markets are already pricing a modest amount of tightening over the next year or two, and that suggests little need for the Bank to signal a more concrete timeline for rate hikes just yet, as per ING.

Danske Bank said, “Bank of England is moving gradually in a more hawkish direction. We expect the Bank of England will end QE this year (perhaps even prematurely) but not hike until H2 22.”

Likewise, Nordea Markets also forecast that the Bank of England will hike in August 2022, but Nordea leans towards a dovish surprise. In a weekly note analyst at Nordea said, “The Bank of England will meet on Thursday hot on the heels of an interesting market pricing backdrop. Bets on a rate hike during the summer of 2022 have increased, and it is slowly but surely forming as a consensus view that the Bank of England will hike in August 2022.”

Also said, the UK central bank is probably the Central Bank with the best “Delta excuse” to postpone tapering talks, even if the boomers in the House of Lords recently asked the Bank of England to “spell out the risks of quantitative easing.” We lean towards a dovish surprise.

Data wise manufacturing PMI pointed higher on both sides with Eurozone Manufacturing PMI printed at 62.8 in July. And UK manufacturing sector pointed to another robust expansion in Jul at 60.4, as per the official release.

 TECHNICAL OVERVIEW

So far, a double bottom was placed at 0.8500 and at lower time frame H1, the cross breakout higher through a minor range and printed a higher low pattern. The combination of these two events suggests short-term bottom in place.

Hence, the support zone at 0.8500-0.8475 could be maintained for the time. A change in the near trend could be confirmed if the price closed above 0.8720.

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

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