KTM FX Weekly: Trading at support zone

Pound notched a solid gain in May against the dollar and the EUR, fuelled by a leading vaccine rollout and hawkish MPC comments. On top of these, the full reopening of the economy in June sparked a rally in the UK assets. The pound gained nearly 3% against the Yen, 2.80% against the dollar, 2.50% against the AUD, and percent gains against CAD, CHF, and NZD. And out subject cross down over a percent. 

Hawks vs. Doves: 

External member of the MPC, Gertjan Vlieghe’s comments supported the pound with a possible re-pricing first-rate hike by BoE. The pound reacted to the upside so do the UK government bond yields on Vlieghe’s comments. Besides, ECB members still on the dovish side. Next week will be eventful to the EURGBP cross as ECB meets on June 10 with a dovish stance. 

In the coming weeks, easing lockdown restrictions in the UK will be the new catalyst for the pound. UK Prime Minister Boris Johnson to reveal if lockdown will be lifted on June 21, as per media sources. If restrictions are lifted on June 21, UK assets could outperform further. 

Growth differentials:

OECD has been assessing how the post-COVID recovery will progress, and they see Global economic growth is now expected to be 5.8% this year, a sharp upwards revision from the December 2020 Economic Outlook projection of 4.2% for 2021. It also sees the UK is projected to grow by 7.2% in 2021, and 5.5% in 2022 is projected as a large share of the population is vaccinated, and restrictions to economic activity are progressively eased. At the same time, the EA is projected to grow by 4.3%in 2021 and 4.4% in 2022.

https://www.oecd.org/economy/united-kingdom-economic-snapshot/

 Macros:

Data wise UK economic calendar is empty. 

Technical view

The weekly pivotal spread between 0.8580-0.8560, below here 0.8530 and 0.8500 and 0.8470 exists—overall thick multi-layer support available below 0.8530 levels. 

Any violation of the 0.8470 level may cause a clean slide towards 0.8400 and 0.8300 levels. Flipside, any decisive breakout above 0.8720 levels may cause strength towards 0.8860. Until such time, wait for support levels. 

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

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