The pound strengthened yesterday, as it was announced that a draft Brexit deal with the EU was reached. The deal is to be presented to the UK Cabinet on Wednesday in order to be signed off in order for an EU summit to be convened and the draft deal approved by EU leaders. Market attention may be zooming in the UK political stage, as Theresa May will need to convince the majority of parliament to back the deal and difficulties may arise, starting with her own party’s hard Brexiteers and the DUP. EU officials, seem to fear that any delay could increase the possibility of UK ministers and/or the UK parliament rejecting the deal. Volatility is expected to continue for the pound, as further Brexit headlines could continue to reel in and UK financial data are due out today.
GBP/USD rallied yesterday, as it broke the 1.2920 (S1) resistance line (now turned to support) and tested the 1.3015 (R1) resistance level. As the pair broke its downward trendline which was incepted since the 8th of November, we lift our bearish bias. The pair could continue to trade in a bullish market if the pound gets some support from the release of the UK CPI rates for October later on, as well as any further positive headlines for Brexit. On the other hand, negative Brexit headlines and the US CPI rate (due out in the American session today), could weaken the pair. Should the pair find fresh buying orders along its path we could see it breaking the 1.3015 (R1) resistance line and aim for the 1.3075 (R2) resistance level. If the pair comes under the selling interest of the market we could see it breaking the 1.2920 (S1) support line and aim for lower grounds.
USD retreats as risk sentiment improves
The USD retreated or consolidated against a number of its major counterparts yesterday as the risk sentiment improved after the draft Brexit deal. The dollar index moved away from Monday’s 16 month high as the EUR and the GBP, which account for 70% of the weight, gained on Brexit, however other currencies also got some support. Analysts point out that the greenback’s retreat was caused by exterior factors and not a shift in appetite for USD or worsening US financial data. We could see the USD rebounding on the release of favorable financial data, expectations for further interest rate hikes and its role as a safe haven.
USD/JPY maintained a sideways motion yesterday near the 113.95 (R1) resistance line. We could see the pair continuing to move in a sideways manner, however some bullish tendencies may occur as the US CPI rates for October could provide some support for the USD side of the pair. Should the bulls dictate the pair’s direction we could see it breaking the 113.95 (R1) resistance line and aim for the 114.55 (R2) resistance hurdle. Should on the other hand the bears take over, we could see the pair breaking the 113.25(S1) support level.
In today’s other economic highlights:
In today’s European session we get Germany’s preliminary release of its GDP growth rate for Q3, the Czech GDP growth rate for Q3, Sweden’s CPI rate for October, UK’s inflation rates for October and the second preliminary release of Eurozone’s GDP growth rate for Q3. In the American session we get the US CPI rates for October and later on the API weekly crude oil inventories figure. The figure gains on attention as oil prices slipped further yesterday and could provide for further volatility on oil prices. Should you be interested in further fundamentals and technical analysis regarding black gold, please refer to our oil weekly outlook due out later today. As for speakers, Riksbank deputy governor Janssen, BuBa president Weidman, BoE’s Ramsden and Fed’s Quarles speak.
USD/JPY H4
Support: 113.25 (S1), 112.72 (S2), 112.15 (S3)
Resistance: 113.95 (R1), 114.55 (R2), 115.10 (R3)
GBP/USD 4H
Support: 1.2920 (S1), 1.2850 (S2), 1.2780 (S3)
Resistance: 1.3015 (R1), 1.3075 (R2), 1.3160 (R3)
