Brexit uncertainty has returned to the market, especially after the resignation of UK prime minister, which was widely expected.
Last Friday Theresa May has announced her decision to step down on June 07 after her recent efforts at Brexit failed. The latest developments of Brexit should weigh on the pound in the coming month. The resignation could lead to another extension of the October deadline. It is too early to say this, but surely pound will underperform in 2H2019 as the risk of a no-deal back to spotlight.
What comes next is the key question To GBP traders. Here is the gist of what analysts anticipate from May resignation.
- Mark Haefele, Global Chief Investment Officer at UBS, said, “From here we have to think of a few scenarios that can play out. At First, we have to put no-deal Brexit back on the table. “
- Nordea markets said, “First of all, the scheduled vote on May’s Withdrawal Agreement Bill in week 23 will not take place.” Analysts Morten Lund and Andreas Steno Larsen said in a note “Looking at the favorite candidates, they are all more Eurosceptic than Theresa May. The main reason is that Conservative Party members are overall pro-Brexit. For instance, polls indicate that around two-thirds of the members prefer a no-deal Brexit.” They also said, “Boris Johnson, who is popular among the grassroots, is the top candidate to win, according to betting markets.”.
- Jordan Rochester and Yujiro Goto at Nomura figured Brexit scenarios for the pound. In a note, strategists forecast the move in pound TWI could move between -7% to 10%.
In terms of macro data from last week, 12-month CPI rate up in April and Retail sales were flat in the three months to April 2019.
- The Consumer Prices Index 12-month rate was 2.1% in April 2019, up from 1.9% in March 2019.
- Retail sales were flat 0.0% in April 2019 when compared with the previous month.
It will be relatively slow in terms of UK data. Besides uncertainty remains the GBP driver in the near and medium term.
The near-term trend of the market continues to be driven by Brexit related headlines. The euro cross could now encounter minor resistance between 0.8850-0.8860 in the next few sessions. Any downward correction from here the resistance zone is unlikely to damage the current uptrend status. The price continued its positive momentum for the fourth straight week but losing the strength.
As the daily oscillator remains bearish and the RSI lacks conviction, the upside risks towards the next resistance at 0.8900 and 0.8960 have eased gradually.
The price has spent the past three days above 200MA and consolidating between 0.8850/0.8860 its 61.8% fib reaction-0.8790 its 200MA; we feel it is a small distribution pattern. Hence, the headroom looks quite limited from the current price; we wait for a minor dip towards 0.8750 to take a new long position with small stop loss at (0.8730 recent swings low in H4 chart), targets at 0.8790 and 0.8830.
- Weekly support zone: 0.8730-0.8720 mid-March high below here focus shifts to 0.8680 its 100MA coincides with April high.
- Weekly resistance zone: 0.8850-0.8860 above here could rally further towards 0.8900 and 0.8950 levels.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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