This week the focus will be on UK’s Nov GDP numbers on top of this Brexit uncertainty remains.  The UK economy and the bond market re surrounded with the Brexit risk and in 1Q 2019 looks like it could be more challenging. The main theme for this week is the GDP data, but the underlying Brexit uncertainty theme remains the key driver for EURGBP. The Q1 price action will be very crucial for the euro cross.

Beyond the macroeconomic data, pound traders waiting for next week’s May’s Brexit deal on 15th Jan (Tue).

Data review:

Recent PMI surveys highlighted its most disappointing expansion since early-2013. “A slight upturn in the pace of economic growth signaled by the December PMI surveys failed to prevent the economy from suffering one of its most disappointing expansions since early-2013.” According to IHS Markit.

  • Manufacturing PMI printed at 54.2 in December, rose to a six-month high, up from 53.6 in November.
  • Construction PMI printed at 52.8 in December, down from 53.4 in November.
  • Services PMI registered 51.2 in December, up only slightly from the 28-month low seen in November (50.4).

Data preview:

Regarding macroeconomic data, the focus will be on November UK’s GDP. Given the recent PMI surveys, we forecast 0.1% m/m basis, the same as in October and 0.3% on 3M basis down from 0.4%.

Chris Williamson, Chief Business Economist said, “Service sector growth remained especially weak, Construction output growth remained more resilient though likewise slowed and Manufacturing growth meanwhile slipped back closer to October’s post-referendum low, ending the sector’s worst quarter since 2016 and indicating a likely mild drag from manufacturing on GDP in the fourth quarter.”.

TECHNICAL OVERVIEW

The Q1 price action will be very crucial for the euro cross. A range of factors/events contributing to euro cross uncertainty in Q1. These include central banks policy divergence. Still, there is a chance of EURGBP correction this year as decent Brexit could expect.

Pound traders are waiting for next week’s May’s Brexit deal on 15th Jan (Tue). If the deal is passed, the EURGBP could eventually break down to 0.8900/0.8850 before retracing to sub-0.8700 levels.

Ahead of this week’s GDP data, 0.8725 is the key support to hold. Until 0.8725 is the support look for 0.9000 and 0.9050/0.9060 levels.

At higher time frame (weekly) the EURGBP traced out a medium-term price top between 0.9085-0.9100 in August-early Jan 2019 via the formation of a double top pattern. The flip side, Dec 2018 low 0.8925 is serving as initial support below here focus shifts to around 0.8800 levels.

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

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