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Brexit in the week from 13/4 – 19/4/2020

Negotiators for Brexit have recovered from the coronavirus infection and last week they agreed on further steps regarding the trade agreement negotiations. Meanwhile, Britain still claims that it will not extend the transitional period. However, the UK has not delivered key draft contracts yet. Is Boris Johnson trying to put the EU under pressure to get an advantage in negotiating better conditions? You can find more on this in our article.

Fundamental analysis

There are already more than 120,000 infected with COVID-19 in Britain. The contagion also hit two key negotiators for the EU and the UK, so personal negotiations on the trade agreement were canceled. While David Frost and Michel Barnier were being treated, their teams worked hard to draft the individual documents. Both men then attended a video conference on Wednesday last week, agreeing on a further timetable for negotiations on the trade agreement.

The next round of negotiations should start in the week of April 20, 2020. Britain's negotiator David Frost confirmed that the UK is not planning to extend the transitional period, which should end on December 31, 2020. However, the European diplomats are convinced that Britain will ultimately request an extension. The request for extension of the deadline would have to be received by June 30, 2020.

The UK has failed to produce a draft legal text on fisheries so far. The EU diplomats are afraid of the British to gain the upper hand by attempting to delay difficult issues until the last minute. EU sources insist there will be no agreement on anything without a deal on fisheries.
Regarding economic data, no significant data was reported in Britain last week. Attention was paid to the USA, where a further increase in the claims for unemployment insurance was reported. Last week, another 5.2 million unemployed people applied for insurance in the US. In total, since March 19, 2020, 22 million unemployed have applied for support. Before the outbreak of the pandemic, the total US workforce peaked in February 2020, with a total of 165 million people employed. That means that unemployment in the US is currently around 13%.

Retail sales in the US fell to -8.7% in March, the previous month it was -0.4%.

Technical analysis as of April 19, 2020

Last week the price moved in the band of 240 pips and the pound ended the week at 1.2493. The price movement is gradually filling the hidden gap, the so-called single, which was created in the week from March 8, 2020. The upper level of this gap is at 1.2750, where we have the closest resistance. Overall, the pound is in a downward trend, as evidenced by the downward trend line between points A, B, and C. At the same time, the line of support between points D and E has been broken, creating a new lower low below a point E. 

Figure 1: The GBPUSD on a weekly chart

On the daily graph, see Figure 2, we can see that the price stopped in the first resistance band and broke through the rising line between HI points, which is the first reversal signal. The H1 graph shows that the moving average of EMA 50 is below SMA 100, which is another confirmation of a reversal. The Purple Extreme indicator is in the overbought zone, which also indicates that a turnaround could occur. Generally, we still have confirmed a downward trend on a daily chart as, at a point, G, a moving average EMA 50 (orange line) dropped below SMA 100 (blue line). 
 
Figure 2: The GBPUSD on a daily chart
 

The key levels of support and resistances are:


Resistance 1 is at the level of 1.2700 - 1.2750.
Resistance 2 is in the zone 1.2800-1.2850. This is the level of SMA 100 moving average. At the same time, there is Fibo 78.6% of the FH movement.
Resistance 3 is in the zone 1.3130 - 1.3200.

Support 1 is located in the band 1.2150 - 1.2230.
Support 2 is in the band around level 1.1400 - 1470.
Support 3 is around 1.10, which is a strong psychological level.

Since the market is generally in a downtrend, it seems more suitable to look for trades in the short direction near resistance levels, where it is then appropriate to wait for confirmation. If the current trading signal proved to be correct and the trader would speculate on a decline with a volume of 0.01 lot and with an entry at 1.25, then the transaction would bring a profit of 820 CZK at the target price of 1.2170. Stop loss would be above the last pivot high, which is 1.2653. In monetary terms, the trader would risk 380 CZK.
 

COT report


In addition, we present the overall market sentiment, which according to the COT (Commitment of Traders) report, which is presented every Friday, shows the following data:
 
COT report
Instrument Data
17/4/2020
Data 10/4/2020 Data
3/4/2020
Data 27/3/2020 Data 
20/3/2020
Sentiment
The British pound 3,200 3,700 5,000
10,900
 

18,600
 
Weak bullish
The USD index 15,400 15,000 14,100 12,500 7,200 Strong bullish

Last week, big speculators again reduced the overall position on the British pound. This is the sixth decline in a row. On the contrary, speculators strengthened the overall net position on the US dollar, which, despite poor macroeconomic data in the US, confirms that it serves as a strong reserve currency in times of crisis.
 

What awaits us this week?

Above all, another round of talks on a trade agreement in the form of an online conference should take place. The next rounds are then tentatively scheduled for May 11, 2020, and June 1, 2020.
In Britain, labor market data will be reported on Tuesday, with unemployment expected to rise more than fivefold than average. Inflation data, the so-called CPI index, will be presented on Wednesday, and on Thursday, Britain will report data on retail sales and PMI.
In addition, further developments in the spread of coronavirus disease and the measures taken in this regard need to be monitored on an ongoing basis. 
 

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