Cable reached an almost 5 month high as hopes for an orderly Brexit strengthened the pound. Negotiations dragged deep into the night yesterday yet reports throughout the day pointed that the two sides were nearing an agreement. On the flip side, UK’s PM Boris Johnson may be facing problems in the inner UK political stage, as the DUP one of his allies in the UK Parliament is expressing worries about the proposals of the UK. EU’s top Brexit negotiator is to inform the member states today as per the progress made and a possible agreement between the UK and the EU. Should there be further positive headlines or even some form of an agreement be announced, we could see the pound strengthening and vice versa. In any case there could be high volatility for GBP pairs today. Cable continued its rally yesterday testing the 1.2760 (R1) resistance line. We maintain our bullish outlook for the pair, as the upward trendline incepted since the 10th of the month remains intact. Please bear in mind though that Brexit developments could turn the pair’s direction either way. Also, that the RSI indicator in the 4-hour chart remains above the reading of 70 and could be implying a rather overcrowded long position for the pair. Should the bulls maintain control over the pair’s direction, we could see it breaking the 1.2760 (R1) resistance line and aim for the 1.2885 (R2) resistance level. Should the bears take over, we could see the pair breaking the prementioned upward trendline and aim if not break the 1.2640 (S1) support line, if not lower.
Hong Kong protests complicate US-Sino relationships
The US House of Representatives passed a legislation taking a hardline against China, with part of it linked with the Hong Kong protests. The new legislation tends to complicate even further the relationships between the US and China as new tensions have already risen and could be threatening to overspill in the trade talks, affecting them negatively. China had a firm response as China’s foreign ministry stated that “China must take effective measures to firmly safeguard its sovereignty, security, and development interests “. The new legislation will have to be voted also by the US Senate and if so, US President Trump must sign it to pass into law. We expect that the new development could add pressure to Chinese President Xi to act, however at the same time we would not be surprised to see China opting for the “smart” choice of letting the protests fade away and at the same time focus on the trade deal with the US and not be distracted. Should the situation escalate further, we could see JPY strengthening while at the same time AUD slipping. USD/JPY continued to rise yesterday, finally managing to break clearly the 108.353 (S1) resistance line, now turned to support. For our bullish outlook for the pair to change, we would require a clear breaking of the upward trendline incepted since the 8th of October. Please note that the RSI indicator in the 4-hour chart is at the reading of 70 and could imply that cable’s long positions may be somewhat overcrowded. If the market continues to favor the pair’s long positions, we could see the pair breaking the 109.00 (R1) resistance line and aim for the 109.70 (R2) resistance hurdle. Should the pair come under the selling interest of the market, we could see USD/JPY breaking the 108.35 (S1) support line and aim the 107.75 (S2) support level.
Other economic highlights today and early tomorrow
In today’s European session, we get UK’s inflation rates for September, and Eurozone’s final HICP rate also for September. In the American session, we get Canada’s CPI rates for September, the US retail sales growth rates also for September and from the US the EIA crude oil inventories figure. During tomorrow’s Asian session, we get Australia’s employment data for September. As for speakers please note that ECB’s Lane, Chicago Fed President Evans and Fed’s Brainard are scheduled to make statements today.
GBP/USD H4
Support: 1.2640 (S1), 1.2510 (S2), 1.2400 (S3)
Resistance: 1.2760 (R1), 1.2885 (R2), 1.3015 (R3)
USD/JPY H4
Support: 108.35 (S1), 107.75 (S2), 107.20 (S3)
Resistance: 109.00 (R1), 109.70 (R2), 110.50 (R3)
