Cable dropped to the lowest point for 20 months as Theresa May postponed the parliamentary vote on the draft Brexit deal. The deepening UK political uncertainty and further arguments about a possible disorderly Brexit increased insecurity among investors. According to media, UK’s PM Theresa May stated that she was delaying the planned vote, as her deal would likely be rejected by a “significant margin”. We would like to note, that scenarios such as a no deal Brexit, another referendum or a last minute renegotiation with the EU have increased chances of materializing after the postponement. It should also be noted that EU Council’s president Tusk, ruled out the possible reworking of the Brexit deal and stated that the EU should prepare for a no deal Brexit. We would like to add that the EU may be reluctant to renegotiate the deal, as it could signal a possible EU weakness to other member states contemplating a possible exit. Having said that, in case of a possible renegotiation, we could see the UK focusing on a deadline for the Irish backstop. We see the case for the pound to remain under pressure as political uncertainty continues.
Cable tumbled yesterday breaking all support levels and reaching its lowest point in about 20 months, only to correct higher, staying above the 1.2555 (S1) support line during today’s Asian session. We expect the pound to remain under pressure about Brexit, however the release of UK’s employment data for October could provide some temporary support. Should the bears continue to reign over the pair’s direction we could see it breaking the 1.2555 (S1) support line and aim for the 1.2485 (S2) support barrier. Should on the other hand the bulls take over, we could see the pair rising and breaking the 1.2630 (R1) resistance line, aiming for higher grounds. Please be advised that the pair’s RSI indicator in the 4 hour chart has reached the reading of 30 implying a possibly overcrowded short position. Having said that, we would also like to mention we see the case, that any possible substantial good headlines for Brexit could have a disproportionally positive effect for the pair, implying a possible surprise for the market.
USD recovers on Fed expectations
The USD strengthened yesterday against a number of its counterparts, as the market was less pessimistic about the Fed’s intentions. Analysts point out the interest rate differentials, between the Fed and other central banks still remain wide and could fuel the USD further. It should be noted that weak data over the past two weeks clouded the prospects of the USD over the next year. Analysts also note that the futures market may currently imply, that traders may expect December’s rate hike and only one more in 2019. We could see the market supporting the USD somewhat, as market fears about a very dovish Fed over the next 12 months seem to pause, at least temporarily.
USD/JPY rose yesterday breaking the 112.72 (S1) resistance line (now turned to support and temporarily the 113.25 (R1) resistance level, only to correct lower during the Asian session today. Technically it should be noted that the pair’s price action, broke the downward trendline incepted since the 3rd of December, hence we lift our bearish bias for a sideways movement. Should the pair find fresh buying orders along its path, we could see it breaking the 113.25 (R1) resistance line and aim for the 113.95 (R2) resistance hurdle. Should the pair come under the selling interest of the market we could see it breaking the 112.72 (S1) support line and aim for the 112.15 (S2) support level.
In today’s other economic highlights:
In today’s European session, we get Turkey’s current account balance for October, UK’s employment data for October and Germany’s ZEW indicators for December. In the American session we get the PPI rates for November as well as the API weekly crude oil inventories figure.
GBP/USD H4
Support: 1.2555 (S1), 1.2485 (S2), 1.2415 (S3)
Resistance: 1.2630 (R1), 1.2700 (R2), 1.2780 (R3)
USD/JPY H4
Support: 112.72 (S1), 112.15 (S2), 111.60 (S3)
Resistance: 113.25 (R1), 113.95 (R2), 114.50 (R3)
