Brexit in a week from 28/10 – 3/11/2019
On Thursday, the UK was to have left the EU. But this did not happen, and instead there is another extension of Brexit until the end of January next year. Uncertainty therefore continues and the fate of Brexit will be decided by voters in early elections in December. Which other events may affect the pound sterling this week we bring in this update.
Fundamental analysis
Last week, all 27 EU countries approved another delay of Brexit until January 31,2020. This is the third extension of the deadline for the United Kingdom to leave the EU. The original date was March 29, 2019, then April 12, 2019 and now it was October 31, when the British Parliament failed to fullfil the results of referendum and leave the EU. It was agreed between the EU and the UK that Britain can leave even before the end of January if British Parliament manages to ratify the Brexit Withdrawal Agreement and relevant legislation.
At the same time, British MPs passed the bill on early elections to be held on December 12,2019, which should end the Brexit stalemate. Therefore, the Brexit game is now returning to the voters' hands. Recent surveys have indicated the victory of the Conservatives (Brexit supporters), but with six weeks to go until election day there is still enough time for public opinion to shift.
From the UK macroeconomic data, data on property price changes (the so-called Nationwide HPI index) were reported on Tuesday, when the index grew by 0.4% (versus the previous 0.2%). On Thursday, consumer confidence data were reported, which fell to –14 (compared to –12). Friday's PMI data in the manufacturing sector indicated an improvement in the economy, reaching 49.6 compared to 48.3 in the previous period.
The impact of the GBPUSD currency pair is also affected by the US data. On Wednesday, the Fed lowered its key interest rate from 2% to 1.75%. The reason for it was a slowing economy, as confirmed on Friday, when the PMI data in the manufacturing sector reached 48.3 and for the third consecutive month they stayed at low levels near the bottom for the last decade.
Important data on the labor market were also reported on Friday in the US. Unemployment rose to 3.6% (from the previous 3.5%), the average hourly wage increased by 0.2% (versus 0.3%) and the creation of new jobs (the so-called NFP -non farm payrolls) increased by 128,000 (the previous month 180,000).
Technical analysis as at November 3, 2019
After the previous strong growth, the situation has calmed down and the GBPUSD currency pair ranged from 1.2806 to 1.2975 last week, see Figure 1.
Figure 1: The GBPUSD on weekly chart
On the daily chart, see Figure 2, we can see that in the past week the price had risen every day to the nearest resistance where it halted.
The overall situation, when a higher high and a higher low for GBPUSD was created on the daily chart, means that the previous downward trend has reversed. Also, the EMA 50 (orange line) crossed over the SMA 100 (blue line) at point D, which also confirms the upward trend. Current Fibonacci levels are drawn between the last higher low and the higher high.
Figure 2: The GBPUSD on daily chart
For potential speculation in the long direction, it would be appropriate to wait for a correction and a price drop to some significant support level. The correction may happen now as the delay of Brexit and the announcement of early elections creates further uncertainty that is likely to translate into movements of the sterling pound.
Resistance 1 is at the level of about 1.3000 - 1.3050. From Figure 1, this is the level of about 78.6% of Fibonacci retracement and it is the area from which the previous significant decline was triggered. At the same time, the price stopped at this level on October 21, 2019. This level is now being tested.
Resistance 2 is at the level around 1.3150 - 1.3200.
Resistance 3 is approximately between 1.3300 - 1.3370.
Support 1 is now in a zone 1.2740-1.2780.
Support 2 is in the range around 1.2550 - 1.2600. This level is a confluence of the Fibonacci level 50.0 % (see Figure 2) and the break of the previous resistance. Reactions may also occur at the level 1.2500, where 61.8% Fibonacci retracement level is. This level seems to be suitable for long speculation.
Support 3 is at 1.2350-1.2400, where the Fibonacci level 78.6% is, see Figure 2.
Support 4 is at 1.2200-1.2250, where the last higher low was created. If the price falls below this level, the 1.20 level may be tested.
What awaits us this week?
Following the approval of the early elections which take place on December 12,2019, the British Parliament will be dissolved on November 6, 2019. Early elections mean one thing - another uncertainty. For this reason, the GBP could take a break from further strengthening and rather move sideways or pull back, as mentioned above.
Crucial for the short-term outlook will be Thursday's meeting of the Bank of England where interest rates will be determined. Analysts expect the rate to remain unchanged at 0.75%. In addition, data on PMI in construction will be reported in the UK on Monday and PMI in services on Tuesday.
From the US data, we will be interested primarily in Wednesday's information on PMI in services.