The euro cross started the week on a negative note again as the risk of a no-deal Brexit declined substantially. Lowering the odds of a no-deal Brexit in October and rising odds of a general election in November tilting us to remain long GBP against AUD, CAD, CHF, and USD.
Danske Bank said “It now appears likely that a snap UK election would only be called after 19th October, which is the date when the UK parliament would have forced the government to either secure a deal with the EU or asked for a Brexit extension. Our base case is a Brexit extension and a snap election at some point after 31 October.”
At the current situation, it is hard to predict who will win in the upcoming general election. Whereas Independent UK reported, “With a snap election expected in November or December at which new recruit Chuka Umunna suggested the Lib Dems could win as many as 200 seats, Ms Swinson will say the party has no time to lose.”.
Data review: The latest UK macro data beat expectations. The gross domestic product grew in July whereas Service sector growth slows in August UK Manufacturing PMI at a seven-year low.
- UK Services PMI registered 50.6 in August, down from 51.4 in July and signaling only a marginal expansion of service sector output, IHS said.
- At 47.4 in August, down from 48.0 in July, the Manufacturing PMI fell to its lowest level since July 2012, IHS said.
- The gross domestic product grew by 0.3% in July 2019, against 0.2% expected. Also, Industrial production up by 0.1% m/m against -0.3% expected.
- The UK unemployment rate was estimated at 3.8%; this is lower than a year earlier (4.0%) and unchanged on the quarter, ONS said.
Asides from the Brexit news, pound traders are waiting for the CPI figure and BOE’s policy meeting.
ING said, “Inflation numbers are set to show a further moderation in price pressures, suggesting the BoE has room to act, but they are unlikely to waste their ammunition in this current period of limbo now that parliament is suspended.”
The cross has been moving lower for five straight weeks and off around 5.0% from recent highs. The run was last five weeks on Nov 2016 and six weeks on Nov 2011. Based on this historical data, we could expect a decent bounce in a week or two.
Daily indicators are oversold, watch out for new rebounds towards the resistance levels around 0.8900 and 0.8970 levels before those around 0.9000 and 0.9015.
There will need to be a breakout above these last levels to envisage an extension of the pair’s ascent towards 0.9100.
Supports are located at 0.8830; it’s 200MA and coincides with 50 and 100 (Weekly) aswell. And 0.8790 its 61.8 fib reaction.
Now the cross is approaching interesting support zone here at 0.8830-0.8790. The area includes the 200MA coincides with 50 and 100 (Weekly) and 20MA (Monthly) as well. So, all in, a fairly thick congestion area. Breaking below the level would increase the chances of continuing down towards 0.8725 March 21st, 2019 high.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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