COVID Long CZK/GBP: Long-Term Strength of Koruna, TA for EntryThe Czech Republic is poised to strengthen against the British Pound for the following reasons. The Czech Republic is uniquely positioned to recover better than the United Kingdom as an advanced manufacturing-oriented country, predominately producing cars, trains and engineering equipment. Following the one-time shock effect of the COVID-induced public health and ensued economic crisis, despite short-term decreases in the demand of personal automobiles, production of vehicles will be relatively intact, although the composition of types of vehicles may differ. Through the ECB's newest stimulus plan, Europe is subsidizing the purchases of new cars, particularly those that are more environmentally-friendly, furthering the effort to become greener. With regard to the outlook for a weaker pound following recent broad-based strengthening, we propose a two-year hold period because then talks for the Scottish quest for independence will rise to the forefront again. Scotland is one of the most valuable components of the United Kingdom and with an average polling of 54% of British citizens wanting to split from the UK, as of now, there is a tilt towards the likelihood of the split. In addition, Mr. Johnson's recent trip is likely to backfire and strengthen the desire to split, and given the Coronavirus pandemic there has been a surge towards the desire for independence, with polls increasing from 49% in March, making this the longest period over which yes votes outnumbered those for a no.
Technically, time the trade by going long upon falling back to the resistance level, which we hold to be 0.034223, and holding through the British elections in two years. This resistance level also represents the 38.2% retracement from the last stark uptrend, a technically-significant level given the Fibonacci levels. See the chart for the previous testing, and strengthening, of the resistance.
Fundamentally this trade is driven by the likely future increase in external demand following the coronavirus crisis.
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