KTM FX Weekly: History always repeats itself
- History always repeats itself
- Vaccine divergence support the pound
- 1Q closing is the key for the medium term for the EURGBP
History always repeats itself:
The pound has been outperforming against the EUR since the beginning of the year 2021. And now the cross logged three weeks down in a row. The last time it was recorded in August and September 2020. Before these, the cross logged four weeks downfall between March -April 2020. Currently, we are in the fourth week, and this week’s closing is the key as per the historical data.
At the higher time frame monthly chart, the cross logged four months straight fall, and now we are at fifth. The last time the fall was recorded for six between April-September 2014 and August-December 2019, and four months downfall recorded between December 2014-March 2015. In this case, March 2021 or 1Q closing is the key for the medium term.
According to the weekly chart, 0.8690 is the immediate support suggested by the A-B-C corrective pattern. Below here, 0.8670 and 0.8620 previous lows exist. A decisive breakout down below 0.8600 could open all the way down to 0.8450 levels.
Vaccine divergence:
UK Prime Minister Johnson said that he would detail his roadmap for ending the current lockdown next Monday, with a priority to try and reopen schools from 8 March. This follows news that the country has made good progress with its vaccination program.
Recent pound strength is largely helped by “A fast UK vaccination process and BoE ruling out negative rates for now,” as per Danske Bank.
Among two European currencies, clearly, the pound remains more appealing on UK’s Vaccine outlook. At least 15 million people in the UK have received at least one dose of a coronavirus vaccine – part of the biggest inoculation program the country has ever launched, according to BBC.
In contrast, the EU has fallen behind on Vaccine rollout. As per the media sources, “Only 3% of people living in the EU have received a dose of Covid-19 vaccine, compared to more than 15% in the UK and 10% in the US.”
Last week the President of the European Commission, Ursula von der Leyen, admitted that “The EU underestimated the rolling out of vaccines and that “we are not where we want to be” in the fight against the coronavirus, as per media sources.
Paul Donovan at UBS said on Monday, “Virus optimism is likely to continue to influence markets with the UK vaccinating over a quarter of its population (leading to calls for reduced restrictions), and US cases at a four-month low.”
Macros:
- The latest economic data confirmed that the UK GDP grew by 1.2% in December 2020 after falling by 2.3% in November. This was largely reflected by the rebound in the services sector.
- The services sector acted as the main contributor to growth in December, increasing by 1.7% as a number of consumer-facing industries reopened following the easing of restrictions in December. The production sector grew marginally by 0.2% in December 2020.
This week we will see UK CPI and Retail data.
ING said, “Headline CPI will remain heavily constrained by energy prices, while more timely spending data points to a post-Christmas 4% fall in retail sales.”
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