After showing a V-shaped recovery, the cross shifted the trend to a consolidation phase. It is consolidating in the range of 0.8600-0.8450 levels.
In the absence of fresh Brexit risk, the GBP could cap the rally in the near term. The GBP is fully priced in the Brexit on 31 January.
BBC cited “MPs back Boris Johnson’s plan to leave EU on 31 January. The government says it will get the bill into law in time for the 31 January Brexit deadline.
Analysts at Nordea Markets said, “1 February Brexit is more than 90% priced into GBP already”.
Technically, December was a big month for the euro cross. First, the cross was painted red candle for four straight months, which was not seen since March 2015. Second, post UK election the cross beaten down to sub-0.8300 levels but managed to hold the 100MA (monthly).
The latest data suggest the downturn in the UK manufacturing sector deepened at the end of 2019, as output contracted at the fastest pace since July 2012.
According to the official data, manufacturing PMI fell to 47.5 in December, the second weakest level for almost seven-and-a-half years (the PMI stood at 47.4 in August 2019).
The other data UK Services PMI registered 50.0 in December, up from 49.3 during November, to signal stabilization of overall service sector activity.
Technically the cross is consolidating in the range of 0.8550-0.8450. The crucial weekly support for the EURGBP is placed at 0.8450, and a break below this level could take the price towards 0.8400 levels.
The daily indicators have picked up, and the weekly oscillator is close to the bullish turnaround. Against this setting, the cross is seemed to recover to 0.8600 ahead of the resistance at 0.8630 levels.
Note that only a break of these last barriers would lessen the risks of a dip back to important support located at 0.8450 and 0.8400 levels. We suggest traders keep an eye on the resistance, a breakout above these levels would strengthen the upward momentum with a new target the resistance levels around 0.8700 and 0.8800.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
What is your Technical View?
Do you have a different idea? Please leave us a comment and get an answer from our professional analysts.