Finally, the cross snapped the four-week descending pattern last and closed with mild gains. The 80.0 fib reaction, as shown in the below chart, offered decent support. Ahead of the UK budget, we remain neutral and continue to study the price action.
Monthly, EURGBP fell -2.20% in February, the largest monthly fall in the past three months. This year, EUR lost nearly 5% against the pound and 5% to erase all of the 2020 gains. Vaccine roll-out divergence is the key driver behind the pound strength. Especially among two European currencies, the pound remains more appealing on UK’s Vaccine outlook.
The latest employment data from the Labor Force Survey showed the unemployment rate continued to increase, while the employment rate continues to fall at the same time. Encouraging news is total hours worked continued to grow but at a slower pace.
UK Manufacturing PMI at 55.1 in February (2-month high) up from 54.1 in January and above the flash estimate of 54.9. The PMI has signaled growth for nine months in a row.
Looking ahead, Budget Wednesday is the key driver to the pound this week.
EUR has been trading lower for most of the past few weeks with more positive GBP inflows. After a 6% correction from January 2021 peak, finally, the price is approaching an exciting support zone. Defined by the following:
Overall, thick congestion between 0.8540-0.8400. So, selling at an 11-month low is not a wise decision even though the downtrend still intact. Look at the daily RSI, trading at 24. This level is not seen since November 2017. On top of this, weekly price action was down for the fourth week -the last time this was recorded between March -April 2020. Based on this, we remain neutral-bullish as there is a chance of a technical rebound in a bearish trend.
Continuation from the last week, at the higher time frame monthly chart, the cross logged the fifth-month straight fall, and now we are at sixth. The fall was recorded for six months between April-September 2014 and August-December 2019, and four months’ downfall was recorded between December 2014-March 2015. In this case, March 2021 or 1Q closing is the key for the medium term.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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