- GBP rallied nearly 1.20% so far this year against the euro, may rally further ahead of EU summit scheduled in October (18-19 Oct).
- We believe positive developments over Irish border issue could ignite a fresh rally for the pound.
- Data wise, weaker macroeconomic data wouldn’t root the GBP to fall drastically.
In the UK, Brexit headlines renewed the buying the buying interest for GBP last week.
Data wise, we will see GDP and August manufacturing (Wed). We expect UK GDP to have expanded 0.1% in August, down from 0.3% in July. According to ONS, the month-on-month gross domestic product (GDP) growth rate was 0.3% in May 2018, 0.1% in June and 0.3% in July.
In the past three months up to July, the growth in the economy picked up. Forecasting this week’s GDP figures, Danske Bank said in a note to clients “We estimate GDP grew 0.2% m/m in August”.
The British pound started the week on a back foot led by fresh Brexit fears while last week GBP was the top performer G10 block. We believe developments over Irish border and EU summit (18-19 Oct) are the key drivers for the euro cross. Any positive developments on the Irish border issue could drag the cross further lower to 0.8700 and 0.8550/0.8500 in an extension in the coming weeks.
The daily RSI reading drifted to an oversold level 31 while the oscillator is remaining bearish. Turning to the higher time frame (weekly) the underlying indicators are remaining bearish.
The key weekly 100 moving average finds at 0.8770. Below here, focus shifts to the next solid support zone find between 0.8720 and 0.8700. A break below this support zone would retrace further to mid-April lows.
The flip side, resistance seems to be at 0.8850 and 0.8900/0.8920.
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