We are waiting for EURGBP to stabilize around 0.8500-0.8470 in the coming days. Financial markets have revised their probability of a no-deal Brexit, and focus has shifted to the UK GEneral election.

There is a potential for a further short squeeze ahead of next month’s general election.

What’s after the general election is the key for EURGBP into early 2020. The outcome from the upcoming UK general election, given its pivotal impact on Brexit proceedings, could trigger a more substantial GBP volatility.

The MUFG Bank said in a note, “ The implied yield on one-month GBP volatility has shot higher in recent days as it now covers the election date. After the last election on the 8th June, the GBP weakened sharply against both the USD and EUR by around 1.5% on a closing price basis.”

The next technical levels to watch are 0.8500 and 0.8490-0.8470 levels and 1.3100 and 1.3250 for GBPUSD its 200MA(Weekly) and 50MA (Monthly).

Data review:

UK GDP was estimated to have increased by 0.3% in Quarter 3 (July to Sept) 2019, according to the ONS.  Q3 GDP was increased by 0.3% following a decline of 0.2% in the previous quarter, whereas the growth was fell short by the recent forecasts.  The National Institute of Economic and Social Research forecasting growth of 0.5% and the Bank of England November 2019 inflation report predicting the growth of 0.4% in Quarter 3 2019. Diving into the sectors, there has been a pickup in services and construction growth in Quarter 3 2019, while growth in the production sector was flat.

The official release also said Manufacturing was flat in Quarter 3 2019, as was production. Services output increased by 0.4% in Quarter 3 2019, following the weakest quarterly figure in three years in the previous quarter.

Turning to the Labor market data, estimated annual growth in average weekly earnings for employees in Great Britain was 3.6% for both total pay (including bonuses) and regular pay (excluding bonuses). The UK unemployment rate was estimated at 3.8%. Both fell below market expectations.

The CPI 12-month inflation rate was 1.5% in October 2019, down from 1.7% in September 2019, another disappointing data.

Data preview:

This week’s economic calendar is empty.

TECHNICAL OVERVIEW

The cross is approaching compelling support here between 0.8500-0.8470. The area includes the March 2019 low and an ABC target. So, all in a fairly thick congestion area. It has not received support from the oversold RSI, whereas we still believe the weekly oscillator should limit the legroom in the coming days.

The market must take out key support at 0.8450 to set the scene for a retracement towards 0.8300. Getting 0.8370-0.8300 would provide an opportunity to consider bullish exposure from better levels.

On the upside, the market needs to take out the mid-October high at 0.8675 to confirm the near-term trend once again. If you are long, I think that would be a signal to add.

View: Watch how price action develops around 0.8500-0.8470. Break lower opens the potential for 0.8370-0.8300. Consider buying if reached. 

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

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