The focus of the week will be on the Brexit deadline on October 31st (Thu). Our baseline remains the same that the deadline extension is highly likely and also expect UK general elections are highly likely before a Brexit deal.
Over the past three months, relentless GBP buying and short-covering drag the cross below all the key daily and weekly moving averages. Now focus remains on the 50MA (monthly) and the March 2019 low of 0.8470. Since mid-October, the pound has been steady as traders wait on Brexit latest headlines.
The 50-MA (monthly) is the next level to watch
UBS cited “Brexit – On and on and on and on we go.” Analyst Paul Donovan said “
In the interminably tedious EU-UK divorce process, the EU is expected to extend everything to January 31st, 2020. Because, why not? Two UK opposition parties, the Liberal Democrats and the Scottish Nationalists, are proposing an election on December 9th. This would then allow a new Parliament longer to debate the withdrawal agreement. Labour, another opposition party, is opposed but may not be able to block this.”
Nordea markets said, “We expect an extension until 2020 to be granted by the EU, in line with our base case since April.”
Data preview: Lack of key data releases keep the focus on the Brexit saga. We still believe the risk of a no-deal is very low. Progress on the early UK General election may raise the GBP’s volatility.
The euro cross continued the consolidation phase last week. There is a visible turnaround in daily indicators, and one can hope that we may witness a decent bounce in the week ahead.
Shifting the momentum in favor of the consolidation phase
The downside breakout of immediate support levels could mean renewed selling pressure after a range move. For ten days, the price bound to consolidate in a narrow range between 0.8675-0.8575 levels.
The bullish turnaround of the daily oscillator should limit the downfall in the coming days. Against this backdrop, a lasting break of the 0.8575sounds tricky, and we rather fear a decline to 0.8475. Note that a break below this level would underpin bearish momentum, paving the way for a decline to 0.8300 levels.
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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