Investors prefer to buy those countries’ currencies that are actively fighting COVID-19, including with the help of vaccines. Let’s discuss how the vaccination campaign’s speed will affect the EURGBP and GBPUSD prices and make up a trading plan.

Monthly pound fundamental forecast

Traders love divergences. In technical analysis, the price chart’s divergence with the MACD indicator is used in the well-known Elder Triple Screen Trading System. In fundamental research, divergences in central banks’ monetary policies and economic growth rates have served their fans for decades. Due to the pandemic, new strategies are emerging in the Forex market, and trading divergence in vaccination rates is gaining popularity.

Britain is considered to be one of the most COVID-19 affected countries. Due to the impressive share of the service sector as a whole (over 80%) and such spheres as recreation, culture, restaurants, and hotels (13%), in particular, in the UK’s GDP, the UK economy faced the most destructive recession in the last three centuries. As a result, the country slipped into the last place among the G7 countries. It is all the more surprising to see the GBPUSD prices near the highs since April 2018 and the EURGBP prices near the 10-month bottom.

The vaccine changes the rules of the game. The currencies of the most COVID-19 affected countries that have a clear plan for overcoming the crisis are beginning to enjoy increased demand, and sterling has something to offer investors in this regard. At the end of January, 10% of Britain’s population was inoculated which is five times more than in the European Union. Divergence in vaccination rates supports the EURGBP bears.

Dynamics of EURGBP and vaccination rate 

    

Source: Bloomberg.

The EU is facing difficulties such as a delay in the supply of the AstraZeneca vaccine and Pfizer/BioNTech’s intention to reduce its product offer outside the US. As a result, the vaccination campaign slows down, and the euro suffers. The surges of EURGBP are associated with weak statistics on retail sales, purchasing managers’ index, and UK employment. The British economy is depressed, but this is a well-known fact. To predict exchange rates, you need to be able to predict the future. The belief that most of the UK population will receive the vaccine by summer allows Aberdeen Standard Investments to expect that the pound will rise by 20% against the euro. 

I also believe that the primary beneficiaries of the victory over the pandemic will be the currencies of those countries that will eradicate COVID-19 first. Sterling will benefit from the booming economy following its release from the lockdown. Due to fiscal stimulus, the UK personal savings rate is near historic highs, and once people start spending that money, GDP will show strong growth.

As for the GBPUSD, despite the potential development of the correction in the short term, the growth of inflationary expectations in the US, measured by the break-even level, will push the USD index down. 

US dollar and break-even level dynamics

     

Source: Nordea Markets.

EURGBP and GBPUSD trading plan for a month

In my opinion, after the release of disappointing data on the British economy, EURGBP price growth should be used for selling in the direction of 0.88, and rebounds from supports at 1.3565, 1.352, 1.349 for buying GBPUSD.

   

Price chart of GBPUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of…



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