KTM FX Weekly: Six days in a row for the third time
- Bearish H&S on the daily chart
- 200MA cap the price
It seems the Sun never rises on the euro cross as selling pressure continues from the 1st day of the new month. Straight six days downward trend was recorded for the third time as per the available historical data.
The lower high trend is clearly visible on the daily chart the resistance has come down to 0.8660 from 0.8720. Flipside, the support zone still stays alive at 0.8470-0.8450. Underneath monthly 100MA 0.8410 has been the lifesaver in July 2016.
As shown on the monthly chart, twice the cross managed to bounce to the new high. Now a re-test to the same moving average is the only hope to the bulls. On a bearish view, 0.8300-0.8270 is the next thick support underneath 100MA followed by 0.8150.
The level 0.8250 is the 161.8fe A-B-C corrective wave structure.
The pound continues to bid against the euro on rising expectations of rate hikes sooner than expected. The chart below shows (source: Worldgovernemnetbonds.com) UK10yr gilts through an inverse H&S pattern. And also through the 10-year descending trendline. At the time of preparing this, the gilts were trading at 1.162%. On 04 August 2020, the same gilts fell to 0.074%.
Spread UK 10yr Gilts/Germany 10yr bunds reached the highest point not seen since May 2016. The pattern suggests the spread would propel towards 150 bp.
ING FX Strategist Francesco said, “Having emerged from a hawkish re-pricing of the Bank of England’s rate expectations lately, GBP’s outlook now appears to be clouded by the potential drag of rising energy prices and more UK-EU political/trade frictions potentially emerging later this year as the UK is reportedly planning to unilaterally suspend parts of the Northern Ireland Protocol.
And also said, historically, Brexit-related risk has taken the shape of a risk premium on sterling: our short-term fair value model indicates that there is currently none priced into EUR/GBP. This suggests markets aren’t currently pricing in the potential negative impact of new UK-EU frictions.
Data-wise, we will get UK GDP and labor market updates this week.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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