• EURGBP entering the seventh week of correction
  • Brexit deal could be a real game-changer

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.

We still expect the current GBP outperformance will be limited from here on and a correction is due after a strong rally.

Recent Brexit headlines suggest that a deal is no nearer. Reuters reported, “Britain said on Friday a Brexit deal with the European Union could be reached at a summit next month, but EU member Ireland said the sides were far from agreement and London had not yet made serious proposals.”.

Data review: UK macro data from last week was not that support to the pound, with the August CPI and retail data was down.

  • The CPI 12-month rate was 1.7% in August 2019, down from 2.1% in July 2019, ONS reported.
  • The monthly retail in August 2019 fell by 0.2%.
  • The MPC voted unanimously to maintain Bank Rate at 0.75% and also highlighted the risk of GBP appreciation.

“Shifting expectations about the potential timing and nature of Brexit have continued to generate heightened volatility in UK asset prices; in particular, the sterling exchange rate has risen by over 3½%.”

Data preview: It will be quiet in terms of market-moving data releases, and that will leave investors’ main focus on the Brexit news.

TECHNICAL VIEW

One glance shows the limited downside of the below chart. Surely it can pull back to 0.8890/.0.8900, but I would not bet on 0.9100 being impossible. 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 oversold, watch out for new rebounds towards the resistance levels around 0.8890/0.8900 and 0.8970 levels before those around 0.9000 and 0.9015.

There will need to be a breakout above these last levels to envisage an extension of the pair’s ascent towards 0.9100.

Supports are located at 0.8830; it’s 200MA and coincides with 50 and 100 (Weekly) aswell. And 0.8790 its 61.8 fib reaction.

Last week the cross managed to hold the interesting support zone located between 0.8830-0.8790. The area includes the 200MA coincides with 50 and 100 (Weekly) and 20MA (Monthly) as well. So, all in, a fairly thick congestion area. Breaking below the level would increase the chances of continuing down towards 0.8725 March 21st, 2019 high.

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

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