The euro cross has been consolidating for two weeks as vanishing catalysts for bullish pound. 

As everyone expected, the European Council announced that the deadline extension until January 31, 2020. The new extension has removed the risk of a no-deal Brexit for now, but not out of the system completely and could cap the GBP strength in the near-term. Now focus on the early general election risk, which scheduled on December 12.

“Irrespective of the result of this election, there are several possible Brexit outcomes by January 31, 2020,” Moody’s Analytics reported last week.

Technically speaking, there is a visible turnaround in daily indicators, and one can hope that we may witness a decent bounce in the week ahead.

Data review: Continued Brexit uncertainty and ongoing political concerns in October continue to weight on the U.K. economy with U.K. Consumer Confidence decreases two points, and U.K. manufacturing constrained.

  • U.K. Consumer Confidence decreases two points to -14 for October 2019, according to the official release.

Commenting on the October data Joe Staton, Client Strategy Director at GfK, says: “In the face of continued Brexit uncertainty, the overall Index score fell to -14 this month. Importantly, the ongoing machinations in Westminster appear to be impacting how we view our personal financial situation for the coming year, with a fall of -3 in this measure in October.”

  • According to IHS Markit, Ongoing uncertainties surrounding Brexit, the economic outlook, and the political situation continued to weigh on the U.K. manufacturing sector during October. The headline seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index rose to 49.6 in October, up for the second successive month but remaining below the neutral 50.0 marks separating expansion from contraction.

 Data preview:

We will get the U.K. October Services PMI survey (Tue) and Bank of England monetary policy meeting (Thu). The pound traders will be watchful on the BOE’s monetary policy meeting. We and the market expect the Bank of England to remain on hold.

 Danske Bank said, “The Bank of England to remain on hold but we will be looking for further signs that the BoE is moving closer to ease monetary policy, as the economy is slowing, and some BoE members have sounded more dovish recently.”

 Moody’s Analytics said, “The meeting had been seen as crucial, given that it would have been the first to come after the October 31 Brexit deadline. But the U.K. asked and was granted an extension of Article 50, and that means markets no longer expect a move from the Monetary Policy Committee. That is also in line with our view; we forecast that the BoE will continue with its wait-and-see strategy.” 

TECHNICAL OVERVIEW

EURGBP on a short-term basis has supports at 0.8575, followed by 0.8560, it’s 50MA (Monthly), and 0.8470 levels. We still believe it has to shift the momentum in favor of the consolidation phase.

The nice double bottom now in EURGBP between 0.8600-0.8575 levels, whereas capped at 0.8675. A daily close above 20MA at 0.8675 is bullish. If you are long, I think that would be a signal to add.

On a short-term basis, it has supports at 0.8575, followed by 0.8560; it’s 50MA (Monthly), and 0.8470 levels. We still believe it has to shift the momentum in favor of the consolidation phase for a longer time. On the flip side, the resistances seem to be at 0.8660 and 0.8720. If the cross is moving higher, watch out for 0.8780.

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

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