The pound has a good run across the board for most of September with the EURGBP was off 5.70% from recent highs and closed a percent lower in Q3.
The building optimism on delaying the Brexit deadline is the key factor for last month GBP appreciation. EURGBP has been retracing in a descending channel, whereas we expect that we are reaching a near-term bottom. As we highlighted a couple of times in our previous weekly reports, the cross has been moving lower for six straight weeks and off more than 5.0% from August highs. We have not seen such a significant correction for at least eight years. Last two significant corrections happened for five weeks on Nov 2016 and six weeks on Nov 2011. Based on this data, we could expect a decent bounce in a week or two. This time we have completed the sixth week of correction.
Data review: The data releases last week were on a weak side.
ONS reported that the UK GDP contracted 0.2% in Quarter 2 (Apr to June) 2019 after a 0.5% jump in the Q1 and the current account deficit narrowed by £7.9 billion to £25.2 billion in Quarter 2 (Apr to June) 2019.
Data preview: The week ahead, we will see Manufacturing and Services PMI. Also, traders focus on the upcoming events, including the Brexit deadline. Queen’s speech on 14th and European Council Summit between 17th-18th Oct and 31st Oct deadline.
Moody’s Analytics said, “Our view has not changed: it is unlikely the deadlock will be broken and a deal reached by October 17-18, when an extraordinary Brexit EU summit is scheduled.”
HSBC cited “GBP’s weakness may reflect an acknowledgment that a deal is not imminent or a creeping nervousness that the UK might somehow leave the EU with no deal despite the Benn bill designed to prevent that outcome.”
EURGBP has been retracing in a descending channel, whereas we expect that we are reaching a near-term bottom. Our technical view has not changed; the 0.8890-0.8900 zone is in focus for me. Any break and hold above would have me looking to the 0.9050 and 0.9100 levels.
Daily indicators are recovering gradually, watch out for new rebounds towards the resistance levels around 0.8970 levels before those around 0.9000 and 0.9015.
There will need to be a breakout above 0.8900 to envisage an extension of the pair’s ascent towards 0.9100.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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