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Brexit in the week from 6/4 – 13/4/2020

Prime Minister Boris Johnson has been released from a hospital and is continuing home treatment. Negotiations on Brexit trade agreement are still stopped. The British government has left only 11 weeks to negotiate with the EU the basic rules of a trade agreement or to request an extension of the deadline.

Fundamental analysis

There was a moment of a serious concern over the fate of the British Prime Minister, who after a long time had the opportunity to change Britain according to his own image. His healing in this case is more than symbolic. Just as Johnson was a symbol of London when he was its mayor, he is a symbol of Brexit and now, Johnson's recovery becomes a symbol of hope for a country where more than 88,600 are already infected with COVID-19. His illness and recovery can help him gain further support.

However, negotiations on the trade agreement are stopped. By June 30, 2020, the British government can ask the EU to extend the deadline for negotiating a trade agreement if it is clear that it is not possible to conclude the agreement by the end of the year. However, the Prime Minister Johnson said several times that he would not extend the term.

The macroeconomic data reported last week showed a change in the real estate price index (Halifax House Price Index), which in March compared to February reached 0.0% (0.2% in the previous period). GDP on a year-on-year basis reached 0.3% (the previous figure was 0.7%). The production in February increased month-on-month to 0.5% (versus previous value 0.4%). The February trade balance was £ -11.5 billion.

Technical analysis as at April 13, 2020

Last week, the price moved in a range of 320 pips. The week ended with a bullish candlestick and the pound closed at 1.2439. 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 was broken, creating a new lower low below a point E.

Figure 1: The GBPUSD on a weekly chart

On the daily chart, see Figure 2, we can see that the price rose last 5 days and reached the nearest level of resistance. If the pound breaks this level and the daily candlestick closes above this resistance zone, the price could rise further toward next resistance. The downward trend on a daily chart is confirmed by the so-called death cross at point G, where EMA 50 (orange line) came below SMA 100 (blue line). The Purple Extreme indicator is in the overbought zone, which could indicate that a turnaround could occur soon.
Figure 2: The GBPUSD on a daily chart
 

The key levels of support and resistances are:


Resistance 1 is in the band 1.2500 - 1.2570. The upper limit of the band is on EMA 50 and there is also 61.8% Fibo from the distance FH, which is the movement for the month of March.
Resistance 2 is on the level of 1.2700 - 1.2750.
Resistance 3 is in the zone 1.2800-1.2850. This is the level of SMA 100 moving average. At the same time, there is a Fibo of 78.6% of the FH movement.

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.

In addition, we present the overall market sentiment according to the COT (Commitment of Traders) report, which is presented every Friday:
 
COT report
Instrument Data as at
10/4/2020
Data as at
3/4/2020
Data as at 
27/3/2020
Data as at 20/3/2020 Data as at 13/3/2020 Sentiment
The British pound 3,700 5,000 10,900
18,600
 

26,300
 
Weak bullish
The USD index 15,000 14,100 12,500 7,200 12,400 Strong bullish

Last week, big speculators lowered net positions in the British pound sterling. This is the fifth decline in a row. Speculators, on the other hand, strengthened overall net positions in the US dollar, which, despite bad macroeconomic data in the US, confirms that in times of crisis the dollar serves as a strong reserve currency.
 

What awaits us this week?

It is not yet known when the next stages of the trade agreement negotiations will take place.
There are no significant economic news scheduled for this week in Britain. The focus will thus be on the US, where retail sales will be published on Wednesday and claims for unemployment insurance on Thursday.
In addition, the development of the coronavirus contagion and the measures taken in this context should be monitored on an ongoing basis.
 

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