• Held significant resistance
  • Reap for a retracement
  • Brexit concerns intensified

The UK economy and the bond market re surrounded with the Brexit risk and in 1Q 2019 looks like it could be more challenging. The main theme for this week is the BOE meeting, but the underlying Brexit uncertainty theme remains the key driver for EURGBP.

Data wise, UK economy slows in 3months to October according to Office for National Statistics, GDP monthly estimate.

UK gross domestic product (GDP) grew by 0.4% in the three months to October 2018 vs. 0.6% in Q3.

Average weekly earnings increased by 3.3%. However, the unemployment rate was estimated at 4.1%, virtually unchanged compared with May to July 2018 but lower than the estimate for a year earlier (4.3%), according to ONS.

Preview:

Data wise, we will see UK November CPI and Retail sales. Our focus remains on the BOE’s outlook.

Turning to the Bank of England’s meeting, we expect the no change. However, given the risk associated around the globe and Brexit chaos, our focus remains on the bank’s outlook on the economy.

We expect the CPI 12-month rate likely to ease to 2.3% down from 2.4% in October 2018 and the headline inflation ease to 1.8% following the recent decline in oil prices. Moreover, we also expect the Retail sales to rebound to 0.2% form -0.5% in October.

FX:

The technical picture for the euro cross has not changed since a week. The daily oscillator suggests lower prices in the near term, and we watch appetite around the support zone 0.8950/0.8940.

On the upside, despite apprehension among traders increasing at 0.9020, a break above this level may pave the way for marginal higher prices through 0.9070 and trend resistance towards 0.9085/0.9100 the psychological level.

What next?

Now the erosion of the 0.9085-0.9100 thresholds is highly encouraging, but mixed daily indicators keep the bulls away. A break of these last barriers would be needed to initiate a more pronounced recovery to 0.9140 its 61.8% fib reaction. In our view, the resistance bar has moved from 0.8940/0.8970 to 0.9100/0.9140.

As we noted last week, we would be concerned if EURGBP could not push and close above 0.9140 over next week or two. That said, an inability for the euro cross to sustain a stronger tone against the 61.8% fib reaction could end up being lower. The flip side, 0.9260 and 0.9300 are the next destinations.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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