A relatively constructive close to the week for the Pound with cable trading at within close vicinity to the 1.38 handle. The slew of UK data throughout the week has had a somewhat limited impact on price action. Softer CPI is likely to reverse higher in the months ahead, which has been well-documented, strong UK flash PMIs for March were not entirely surprising given the UK’s roadmap to normalization being laid out, while retail sales are also expected to bounce strongly as non-essential retail re-opens. That said, for much of this and for the first half of next week the focus has and will be on month/quarter-end flows for G10 FX.
EUR/GBP RANGE BREAK NEARING
The modest bid in cable has been in part a by-product of some cross-related EUR/GBP selling with the 0.8540-0.8640 remaining well respected. In turn, with the cross yet again rejecting the range top, to trade at range lows, the focus will be on whether we can finally see a clean break next week. The fundamentals continue to signal that EUR/GBP remains tilted to the downside with Europe heading towards a third Covid wave with most of the region extending restrictive measures, while the UK has set the roadmap for normalization.
Although I must admit until yesterday, I had been cautious on expecting further downside in recent weeks, given that the cross had been in oversold territory, while the RSI had also posted a bullish divergence. However, with the RSI failing at 50 and now out of oversold conditions, there is more room to expect near-term direction, alongside this we are also heading towards a seasonally strong month for GBP as seen below.
GBP/JPY UPSIDE RISKS AMID MONTH/QUARTER-END FLOWS
Another GBP cross that tends to pique my interest around this time of the month is GBP/JPY, which typically performs pretty well on the final day of the trading month (particularly ahead of the 4pm London fix) as the table below shows. With that in mind, the Japanese FY end may also provide a tailwind to exacerbate the move higher, which has been notable as we close out the week.
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