The pound has been buffered by changing Brexit headlines. It looked like the fortunes of the pound would change last week after Brexit deal optimism was over the surface. As a result, the short covering has hovered across the board.
Last week we forecasted that we still expect an extension of the pair’s ascent towards 0.9100, whereas the cross-posted a high at 0.9020 and has changed the direction.
With 16 days until the Brexit deadline, our technical forecast remains favor to limited legroom. Now it might fall to 0.8640 initially, followed by 0.8500-0.8470 zone suggested by the A-B-C corrective wave structure.
Data review: The data releases last week were on a weak side again.
ONS reported that the UK GDP was negative 0.1% in August 2019, following growth in both June and July 2019. Production fell by 0.6% in August 2019, following growth of 0.1% in July. Within production, manufacturing fell by 0.7%. This was driven largely by a fall-back in the often volatile manufacture of pharmaceuticals, following strong growth in July, according to the official press release.
Data preview: This week, the economic data releases are heavy than last week, with unemployment, inflation, and retail sales. We keep the focus first and foremost on Brexit headlines, which could dominate the trend and makes GBP to swing widely. Our baseline remains the same that the deadline extension is highly likely and also expect UK general elections are highly likely before a Brexit deal.
The probability of a deal is only 20% ((from below 10% previously), according to Danske Bank, whereas UK economists at Morgan Stanley have raised their probability of a Brexit deal from 35% to 55%.
Over the course of this year, the euro cross weakened from the strong position it enjoyed on, slipping to Jan 2019 lows.
The euro came under renewed selling pressure against the pound at the end of the week resulting in EURGBP falling back below the mid_Sep low. The cross is now trading tad above key support level provided by 200MA (Weekly) and 50MA (Monthly) at 0.8640 and 0.8540, respectively.
Now it might fall to 0.8640 initially, followed by 0.8500-0.8470 zone suggested by the A-B-C corrective wave structure.
A decisive break below 0.8640 (weekly closing) would open up further downside towards the lows recorded in mid-May and March 2019.
The resistances seem to be at 0.8790-0.8830 and 0.8890.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
A question? Let us help!
A KTM Analyst is ready to assist you, click on the comment section below