The pound hit a 10 day low against the USD, as UK’s PM said that EU’s proposal for the border is unacceptable. The EU summit in Brussels was unable to produce a deal or a breakthrough with the UK, about Brexit. Theresa May, stated that there were still considerable unresolved issues with the EU relating the backstop Irish border arrangement. One idea would be to prolong the period in which the UK remains under the EU’s full membership rules after December 2020, in order to provide more time for the deadlock to be broken. It should be noted though, that such a development could provoke anger among hard Brexiteers in the UK parliament. The mood seems to be quite pessimistic, as EU leaders seem to be less willing to repeat such a meeting, unless there is a breakthrough. Should there be more negative headlines about Brexit, we could see the pound weakening even further.
Cable dropped yesterday, breaking consecutively the 1.3060 (R2) and the 1.3025 (R1) support lines (now turned to resistance). We see the case for the pair to continue to trade in a bearish market, as the downward trendline incepted since the 16th of October, not only remains intact but also shows signs of steepening. It should be noted though, that the RSI indicator in the 4 hour chart remains at the reading of 30, implying an overcrowded short position. Should the bears continue to dictate the pairs direction, we could see the pair breaking the 1.2965 (S1) support line and aim for the 1.2920 (S2) support barrier. Should on the other hand the bulls take over, we could see the pair breaking the 1.3025 (R1) resistance line and aim if not break the 1.3060 (R2) resistance level aiming for the 1.3150 (R3) hurdle.
Euro loses ground on Italian budget
The common currency lost ground against the USD yesterday, as the Italian Budget issue made headlines. The European Commission’s criticism of Italy’s budget, renewed concerns about further political instability for the Eurozone. Criticism seems to consist of remarks about planned government spending being too high, structural deficit expected to rise instead of falling and that Italian public debt would not drop. Despite the Italian PM, Conte defending Italy’s spending plan, the EU seems to consider it as a “particularly serious non-compliance” and its deviation from targets as “unprecedented”, according to media. At this point we would like to underscore the word “unprecedented”, as in the past Brussels had tolerated deviations, hence implying that this time action could be taken. It should also be noted, that within the Italian political scene frictions seem to escalate, between the 5 Star Movement and the League, destabilizing further the situation. As Brussels and Italy seem to dig into their positions, analysts point out, that the Euro decline reflects the political tension in the Eurozone. Should there be further negative headlines about the issue or an escalation, we could see the Euro weakening.
EUR/USD dropped yesterday, breaking the 1.1480 (R1) support line (now turned to resistance), aiming for the 1.1430 (S1) support level. We see the case for the pair to continue to trade in bearish market, as the downward trendline incepted since the 16th of October remains intact. It should also be noted that the RSI indicator in the 4 hour chart, remains near the reading of 30, underscoring the possibility of a correction. Should the pair continue to be under the market’s selling interest, we could see it breaking the 1.1430 (S1) support line, aiming for the 1.1360 (S2) support area. Should the pair find extensive buying orders along its path we could see it breaking the prementioned upward trendline, the 1.1480 (R1) resistance line and aim for the 1.1525 (R2) resistance zone.
In today’s other economic highlights:
In the American session, from the Canada we get the inflation rates for September and the retail sales growth rate for August. From the US we get the number of existing home sales for September as well as the number of active oil rigs in the US as counted by Baker Hughes.
Support: 1.1430 (S1), 1.1360 (S2), 1.1300 (S3)
Resistance: 1.1480 (R1), 1.1525 (R2), 1.1577 (R3)
GBP/USD 4H
Support: 1.2965 (S1), 1.2920 (S2), 1.2850 (S3)
Resistance: 1.3025 (R1), 1.3060 (R2), 1.3150 (R3)
