Daily Market Analysis and Forex News

It is official.

After more than four years of drama and uncertainty, the United Kingdom and the European Union have finally reached an agreement on terms of a post-Brexit deal.

This is a historical development that is set to lift sentiment and remove a layer of uncertainty for the UK ahead of the New Year. Considering how this agreement comes less than a week before the transition deadline, investors and businesses are breathing a sigh of relief. Given how the trade agreement has to be ratified, the two sides now face a race against time to put the trade deal into law.

For the time being, the deal will allow tariff-free trade to continue between the UK and the EU – a welcome development for business on both sides of the English Channel. However, the UK can eventually expect widespread new barriers to trade and even travel with the European continent – a discussion for another day.

Looking at the technical picture, the GBPUSD offered a muted reaction to the announcement before later slipping against the Dollar. With the agreement largely priced in, the Pound could be experiencing some profit-taking ahead of the Christmas holiday. Prices still remain bullish on the weekly timeframe. A weekly close above 1.3500 could open the doors towards 1.3650 and higher. Should 1.3500 prove to be unreliable support, the GBPUSD may slip towards 1.3300.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

After more than four years, the Brexit saga could be ending with the final episode airing just before Christmas. 

Optimism is through the roof around the UK and EU reaching a breakthrough thanks to the great progress made towards settling the outstanding issues of fisheries. An eleventh-hour deal before the transition deadline will be a welcome development for the UK economy and should remove an element of uncertainty as we approach the new year.

Given how the outline of a deal was already agreed on Wednesday evening, an announcement is expected on Thursday morning as negotiators in the European Commission finalize the wording of the final treaty. UK Prime Minister Boris Johnson is expected to make a final call with the president of the European Commission Ursula von der Leyen this morning before we get the official press conference. If a trade deal is announced, the British Pound will most likely extend gains as a major thorn is removed from its side.

However, given the extraordinarily uncertain and complex nature of Brexit, it may be wise to expect the unexpected. 

Looking at the technical picture, the GBPUSD is bullish on the weekly timeframe was prices trading around 1.3530 as of writing. Where the GBPUSD concludes today will be heavily influenced by what happens over the next few hours.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

The wires are ablaze with news that a Brexit deal is now done, citing UK sources close to Number 10. There will no doubt be much crossing of the ‘t’s and dotting of the ‘i’s with plenty of other observers still maintaining caution. But it seems the next 24 hours could see an agreement with the Brexit Christmas pantomime officially closing this week.

The Pound rallies

Sterling is not holding back and is up 1.3% on the day versus the Dollar with EURGBP off 0.8. Cable topped 1.3570 today with the ‘hotline’ between UK PM Johnson and EU Commission President von der Leyen in full (fisheries) effect. An intensified phase of talks has ultimately brought us to the final curtain, though what type of deal is hatched will be scrutinised with talks around the fine detail still needed.

GBPUSD has manged to maintain the bullish channel from the lows hit in mid-September. A series of higher highs and higher lows saw the major touch a two-year top last week above $1.36 before spiking lower on Monday. But the sharp intraday pullback was encouraging for bulls and they will now try to get beyond 1.3624 on a relief rally if and once any agreement is confirmed. EURGBP is more messy with prices needing to drop below last month’s lows at 0.8861 to see deeper downside.

Risk moods softens

Elsewhere, the Dollar is easing and consolidating once more just above its recent lows. Trade volumes are low as we enter the holiday period, although we got a last US data dump of the year this afternoon. The weekly jobless numbers were better than expected but still elevated above 800k, while the durable goods report was much stronger than it first appeared, with big revisions and shipments potentially leading to GDP revisions going forward.

The possible ‘inverted hammer’ candlestick in the DXY printed on Monday, which would be a trend-reversal signal, is not playing out as such just yet. Prices haven’t managed to trade above Monday’s high around 91.02 which would see the signal confirmed. Yesterday’s ‘inside day’ indicates consolidation and the long-term trend as we know is definitely down!

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

After being dragged across the concrete last week, the battered Pound could be instore for more punishment over the next few days amid Brexit related anxieties.

Concerns remain elevated over the United Kingdom ending the transition period without a Brexit deal after the EU’s ultimatum for Boris Johnson to make significant changes to his controversial Internal Market bill within three weeks. Although Parliament is set to debate the bill today any sort of breakthrough is unlikely given the constant back and forth seen over the past four years. The Pound is in trouble and any fresh signs of UK-EU relations deteriorating may haunt investor attraction towards the currency even further.

Before we sink our teeth into the technicals, there are a couple of fundamental events that may influence the Pounds performance this week.

On Tuesday, the UK unemployment rate will be released for August which is projected to jump 4.1% compared to the 3.9% seen in July. Weakness in the labour market despite the government's furlough scheme may sour sentiment towards the British Pound and UK economy.

Inflation figures will be published on Wednesday morning. Markets expect inflation to accelerate by 0.2% in August versus the 1.0% seen in July.

Super Thursday is unlikely to offer any super surprises as the Bank of England (BoE) is expected to leave interest rates unchanged at 0.1%. However, any dovishness about the UK economy could result in the Pound weakening against the Euro and other major counterparts.

The week ends with the latest retail sales figures which seen rising only 0.5% month-on-month compared to the 3.6% in July. Given how consumption remains an engine for growth in the United Kingdom, disappointing retail sales may compound to the Pound’s woes while raising speculation over the BoE cutting interest rates to 0% in the future.

Pound still nursing deep wounds

The GBPUSD tumbled almost 4% last week, hitting a 6-week low under 1.2770. It looks like the currency pair is staging a minor rebound today with prices trading towards 1.2880 as of writing. Interestingly, FXTM’s trader’s overall sentiment is long on the currency pair this afternoon.

A technical breakout above the 1.2885 resistance level may encourage an incline towards 1.3000 and potentially 1.3050.

However, prices are trading below the 20 and 50 Simple Moving Average while the MACD points to the downside. If 1.2885 proves to be reliable resistance, prices could decline back towards 1.2760 and 1.2650, respectively.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

After almost three and a half years since Britain voted to leave the European Union, the country is finally on track to sever its ties with the continent next month as results forecast the Conservatives winning a clear majority.

If it is confirmed that UK Prime Minister Boris Johnson has secured a decisive election victory with a majority of around 85 seats, this will be warmly received by investors seeking clarity and direction on Brexit.  This sentiment has already been reflected in Sterling which has appreciated against every single G10 currency and jumped 2.7% versus the Dollar to breach 1.35 – its highest level since May 2018. While the pound is positioned to push higher on Brexit optimism, the longer-term outlook may be clouded by how easy the withdrawal agreement will pass through Parliament and what happens during the transition period.

Given that lawmakers will return to the House of Commons on December 17, Johnson will waste no time in ‘getting Brexit done’ by pushing through the withdrawal agreement as soon as possible. Even if the process is smooth sailing from here and MP’s sign off the agreement before January 31 next year, this is only part one of the complicated Brexit saga. Once the temporary sugar rush offered by the withdrawal agreement diminishes, investors are then likely to turn their attention to the 11-month transition period the UK needs to negotiate a new trade relationship with the EU. Will that time be enough to formulate a new deal, or will the UK decide on extending the transition period by up to a further two years?

As the dust settles, investors may start re-evaluating the threat of a no-deal Brexit by the end of next year amid fears over the UK failing to reach a trade agreement with the European Union. Without a post-Brexit deal, Britain will revert to World Trade Organization (WTO) rules to trade with the European Union which could see additional tariffs and quotas on a range of goods. The reality of more drama and uncertainty looming in the year ahead has the potential to cap gains on the British Pound.

With regard to the technical picture, GBPUSD is strongly bullish on the daily chart. Prices have jumped over 300 pips within the past few hours with buyers currently in the driving seat. A solid breakout above 1.35 should encourage a push higher towards 1.36. However, should 1.35 prove to be a stubborn resistance level, GBPUSD could decline back towards 1.3380, this year’s previous high set in March.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.