Brexit in a week from 2/12 - 8/12/2019
Today we are continuing with the previous articles, where we discussed current news about Brexit. This week will be absolutely crucial for further development of the pound sterling with regard to the elections held on Thursday December 12, 2019. What are the current prospects you can read below.
Fundamental analysis
After a long pause, Brexit starts making waves again. Already on Thursday, the British will decide what the direction of Brexit will be in the early parliamentary elections.
Recent election surveys have so far shown a rather convincing lead of the Conservatives over Labours by about 10% points. However, if it is enough to obtain a parliamentary majority to ensure the smooth adoption of Brexit laws and the related planned departure of the UK from the EU on January 31, 2020 is a question the answer to which we will know only after the elections. In 2017, for example, surveys also clearly favored conservatives, but they eventually lost majority in the elections.
According to some analysts, these elections will be highly erratic and the numbers of still undecided voters are significant. Let us not forget that there is a majority electoral system in Britain where every vote matters.
In terms of economic data, data on PMI in construction was reported last week, reaching 45.3 (44.2 in the previous period). PMI in services was 49.3 (50 in the previous period).
Surprisingly positive news about employment development came from the U.S. on Friday, when the monitored NFP indicator exceeded expectations and reached 266,000 newly created jobs (in the previous period it was 156,000).
Technical analysis as at December 8, 2019
From the weekly chart, see Figure 1, we can see that the price broke through the resistance level in the previous week, as a result of positive pre-election surveys . The GBPUSD created a long bullish candlestick on the weekly chart and closed the week at 1.3131.
Figure 1: The GBPUSD currency pair on a weekly chart
On the daily chart, see Figure 2, we can see that the price continues to move in an upward trend. This is confirmed by the fact that it created a higher high (point D) and a higher low (point E), and also the EMA 50 (orange line) crossover above the SMA 100 (blue line) at point F confirms the increasing trend. At point G we have another higher high. At point H, the previous resistance level was broken, having previously consolidated in a side movement for six weeks.
The price has now reached the further resistance and now the ideal scenario would be for the currency pair to make a correction to 1.3020, where the price broke through the resistance (point H) and then continued upwards. The second scenario is that the current resistance barrier breaks without correcting. If the Conservatives were to win the elections convincingly, we might see at least 1.3350 at the end of the week.
Figure 2: The GBPUSD currency pair on a daily chart
Resistance 1 is at a level of around 1.3150 - 1.3200. It's a barrier that stopped the price last week.
Resistance 2 is at a level around 1.3300 - 1.3370.
Resistance 3 is in a range 1.3650 - 1.3700.
Support 1 is now in a zone 1.3000 - 1.3200.
Support 2 is located in the band 1.2750 - 1.2780.
Support 3 is in the range around 1.2550 - 1.2600.
What to focus on this week?
It is clear that Thursday will be a very important day for the further development of the sterling pound. If the elections turn out as surveys show, the pound could significantly strengthen. However, if the Conservatives do not win the majority themselves nor in the coalition, the situation will be as stalemate as it was in October. This could be negative for the pound.
In terms of economic data, Britain's GDP and production data will be reported on Tuesday. The Fed's decision on rates on Wednesday will be very important for all major currency pairs as well.
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