KTM FX Weekly: The bar has been edging lower
The U.K.’s local election event sends the pound higher against the EUR and the Dollar, as expected. Finally, the bar has been brought down from 0.8860 to 0.8720 levels. From the Scottish election outcome, we could anticipate further political noise in the name of the second referendum.
1st Scottish referendum was taking place on 18 September 2014. The outcome was unfavorable to independence, with 55% voted against the proposal to become independent. After six years of long haul, now 2nd independence vote hopes surface after the SNP won a historic fourth term in government.
Francesco Pesole, the F.X. Strategist at ING, said, “Political risk (both regarding the stability of the U.K. government and the risk of a Scottish referendum) appears to be a secondary story for GBP at the moment, considering that hopes of a strong economic rebound continue to be fuelled by the reopening plans in the U.K. and this should continue to put a floor under GBP.”
Data review:
Moving away from the political noise last week was eventful to the U.K. assets. The bank of England joined the tampering club along with the Bank of England. Now BoE is the 2nd back in the club, who’s next to join ECB or Fed is the catalyst to the F.X. market. We ECB next to follow suit, and we are long EURUSD in this case. For EURGBP, we need a higher high pattern to confirm the trend. Aggressive tampering from the ECB over BoE would be beneficial to the EURGBP in the medium term.
Last week Bank of England’s announced that the MPC voted unanimously to maintain Bank Rate at 0.1%. The Committee voted by a majority of 8-1 (not unanimous) for the Bank of England to continue with its existing program of U.K. government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these government bond purchases at £875 billion and so the total target stock of asset purchases at £895 billion. The weekly pace was reduced from £4.4bn to £3.4bn, but not aggressive though.
Besides, the most anticipated communication around weekly bond purchase finally got the answer that “continuing purchases could now be slowed somewhat,” but this tampering is only an “operation decision.” GBP rose a percent across the board on the news and continues to bid on Monday as well.
ING said, “The new £3.4bn/week pace, while a little higher than we’d expected, is more consistent with purchases continuing until later in the year.”
After a busy last week, this week we will get U.K. 1st quarter GDP (Wed). Any surprise higher number would further benefit the GBP against the EUR.
Moody’s Analytics said, “The U.K.’s GDP, meanwhile, likely jumped 1.9% month over month in March after a 0.4% increase in February. The economy likely kicked into gear during the month as firms geared up for the end of lockdown.”
TECHNICAL OVERVIEW
The triple top pattern on the weekly chart sends the EURGBP lower and printed the first two-weekly decelerating weeks for the 1st time since March. Any decisive breakout above 0.8720 levels may cause strength towards 0.8860. Until such time, wait for support levels. After a massive Monday’s beating, the cross is now approaching its three-week support levels at 0.8580, followed by 0.8530, its February low. Any violation of the 0.8470 level may cause a clean slide towards 0.8400 and 0.8300 levels.
On the monthly chart, EURGBP continues to hold its 100MAs which acts as support in the medium term.
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