Brexit in a week from 13/1 - 19/1/2020


In less than two weeks, the UK will no longer formally be a part of the EU. This fact is already priced in the GBPUSD and the pound sterling is waiting for further impulse while a set of recent economic data showed rather negative news. Read more about this in our article below.
 

Fundamental analysis


The British Parliament passed a law implementing the Withdrawal Agreement Bill (known as divorce agreement) into British legislation. This law contains rules to protect the rights of EU citizens residing in Britain, the customs arrangements in Northern Ireland and the 11-month transition period. That means that the UK will definitively leave the EU on January 31, 2020, and must negotiate the form of trade relations with the EU by the end of December 2020.

From the UK's major economic data, the GDP data were reported last week when it achieved 0. 6% growth on a year-on-year basis (compared to the previous 1%). The UK economy is thus slowing down. Manufacturing production on a month-on-month basis was -1.7%  (0.5% reported in the previous period). Inflation was reported on Wednesday when the CPI reached 1.3% on a year-on-year basis (the previous figure was 1.5%). Friday's retail sales data was also beyond expectations.
In connection with the worse economic data, let us recall the recent statement of the BoE Governor, who mentioned that the central bank is ready to support the economy in case of continuing weak economic growth. 

 

Technical analysis as at January 19, 2020


From the weekly chart, see Figure 1, we can see that the GBPUSD pair is now in the range between 1.35 and 1.29 and it is possible that the price will remain in this band until the end of January. For the last two weeks, candles have formed lower highs and lower lows. Last week the price was around 150 pips and it closed at 1,3005.

 

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Figure 1: The GBPUSD on weekly chart

On the daily chart, see Figure 2, we can see that the price continues to move in an upward trend, which is confirmed by the growing channel, as well as the bullish pattern called golden cross, which happens when EMA 50 gets above SMA 100 (see point F) and higher highs and higher lows were also formed. The GBPUSD has now reached the support line of the growing channel as well as the moving average  EMA 50.

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Figure 2: The GBPUSD on a daily chart

From the perspective of this technical analysis, trades in the long direction would be preferred. The ideal scenario now is to wait for the reaction to the support line at point L. If there is a strong bullish candlestick on the lower H4 timeframe (for example, a bullish engulfing candlestick pattern), then this could be a signal to buy. If, on the other hand, the trend line breaks down, then another possible entry for long would be at the first level of support, which is 1.2900-1.2940.

Resistance 1 is at the level of around 1.3260 - 1.3280.
Resistance 2 is in the broadband 1.3330 - 1.3510. The level was tested and then the price bounced back down.
Resistance 3 is at the level of 1.3700 - 1.3750.
Support 1 is now in the zone 1.2940 - 1.2900.
Support 2 is located in the band 1.2780 - 1.2820.
Support 3 is in the range around 1.2520 - 1.2570. This level is a break of previous resistance.

In addition, we present the overall sentiment of the market, which according to the COT (Commitment of Traders) report, which is presented every Friday, shows that large speculators have been increasing their long positions for several weeks, which means they expect the pound to strengthen.

What awaits us this week?


From the macroeconomic data on Tuesday, the UK will report employment data. The results of retail sales will be announced on Wednesday and data on PMI developments in the manufacturing sector and services will be expected on Friday.
As Brexit also has an impact on the euro, it will be important to monitor the ECB's interest rate decision on Thursday. 

 

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