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Andreas Zanin
Analysis | November 10, 2020

KTM FX Weekly: Relationships matters

 Among EUR/ crosses, EURCHF and EURGBP are the two which has been testing our patience. But we still favor long EUR against the CHF and GBP in the medium and longer-term, especially EURCHF. 

The pound has an everlasting Brexit concern. Now the US-UK trade relationship could be the new hurdle. Under Biden, foreign policy would be different for China and the UK with the US. On a positive note, US-China will hopefully improve, but US-UK could deteriorate.

Trump was a strong supporter of Brexit, but Biden believes it was a historic mistake. As per media sources, we learn Biden and his team would not want Britain to leave the EU without a trade deal, mainly if it involved breaking commitments made in the Northern Ireland protocol.

  • Martin Enlund and Andreas Steno at Nordea said, “Biden is a Catholic of Irish descent and may not be too keen to give BoJo a nice trade deal. Trump and BoJo have been “partners in crime” during the whole Brexit soap opera, why BoJo is likely one of the few European leaders that will not salute the Biden victory.” BoJo- Borris Johnson.

Away from the relationship problems last week, the Bank of England holds the rates, as expected. But BoE adding more cash into the UK economy.

“We are keeping interest rates low,” BoE said on November 05. The MPC voted unanimously to maintain Bank Rate at 0.1% and increase its QE by an additional £150 billion.

The Central bank highlights, “The outlook for the economy remains unusually uncertain.” and “The recovery takes time, however, and the risks around the GDP projection are judged to be skewed to the downside.”.

CPI inflation is expected to remain at, or just above, ½% during most of the winter before rising quite sharply towards the target as the effects of lower energy prices and VAT dissipate. In the central projection, conditioned on prevailing asset prices, inflation is projected to be 2% in two years, as per the bank’s MPR.

Reaction: The pound rallied across the board after the BoE’s decision. Besides, Gift yields fell initially later settled neutral.

 Data review:

UK’s manufacturing PMI fell to 53.7 in October, down from 54.1 in September but above the earlier flash estimate of 53.3. The PMI has remained at an above-50.0 level, signaling expansion, for five months running.

 Data preview: We will be looking at the Sep ILO unemployment rate (Tue) and UK Q3 GDP (Wed). The near-term GBP’s trend is cast on the Q3 GDP.

Westpac said to expect a big bounce to be followed by another contraction.

Moody’s Analytics said, “We expect GDP rebounded 15.1% q/q in the three months to September, leaving GDP 12% below year-ago levels during the same period. Likewise, we expect GDP increased by 0.1% m/m August to September.”.

 TECHNICAL OVERVIEW

One massive weekly green candle followed by nine weeks retracement. This is the theme for EURGBP since early September. The price capped at 20MA last week and this week, too, drifting slowly towards the recent swing low located at 0.8865. This level could act as a lifeline to the bulls if hold.

At a weekly chart, we spotted a Golden crossover pattern. The daily 14 periods RSI has been losing momentum, and so do oscillators. On the downside, support exists at 0.8860 and 0.8650.

If the price is moving higher, watch out for resistance at 0.9070 and 0.9170-0.9200. A deceive breakout above 0.9070 could change the near-term trend.

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

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