Brexit in a week from 24/2 - 1/3/2020

The GBPUSD price tested the key support last week and it continues to move below the moving average with a period of 100 days. Negotiations between the EU and Britain on a trade agreement will begin this week. Will these negotiations cause a further weakening of the pound?

Fundamental analysis

Last week was calmer in terms of fundamental analysis and no significant data were reported that would have a major impact on the pound. Pound movements were more likely due to the situation surrounding the coronavirus epidemic. There are 36 people infected in Britain as at March 1, 2019.

From economic data, we select the 10-year bond auction, where the interest rate 0.510% was achieved. On Friday, data on consumer confidence in the economy were reported, reaching  - 7, an improvement over the previous figure, which was - 9. A negative figure indicates a pessimistic mood.

Data were also reported on the change in the price of real estate sold with mortgages, which is reported by the Nationwide Housing Society, where the month-on-month growth slowed from the previous figure of 0.5% to the current 0.3%. However, this index only covers 10% of the market.

Technical analysis as of March 1, 2020


From the weekly chart, see Figure 1, we can see that last week was bearish and the price broke through the low previous weekly candles and even broke through the lower level of the nearest support zone. The price moved in a range of around 290 pips last week and closed at 1.2816.
Figure 1: The GBPUSD on the weekly chart

On the daily chart, see Figure 2, we can see that the price closed below the moving average of SMA 100 on February 28, 2020, under which it remained the last three days of the week. The price also broke through the level of support, but came back and closed in the upper part of this zone.  Generally, the price move below the SMA 100 moving average is a bearish signal. It also seems that the EMA 50 could soon cross below the SMA 100, creating a bearish constellation of the so-called death cross. This would signal a further weakening of GBPUSD. 
 
Figure 2: The GBPUSD on the daily chart

The key levels of supports and resistances are:

Resistance 1 is in the band 1.3040 - 1.3070.

Resistance 2 is at the level of 1.3200 - 1.3280.

Resistance 3 is at level 1.3330-1.3510.

We can also take the moving average of SMA 100 as the resistance.

Support 1 is located in the band 1.2760 - 1.2820. This support zone was tested last week, but then the price rose and Friday’s candlestick closed at its upper part. We'll see if the support will hold the price. If not, the price has free room to move to the support 2.

Support 2 is in the range around 1.2530 - 1.2580. This level is breaking through the previous resistance.
Support 3 is in band 1.2180-1.2200

In addition, we present the overall sentiment of the market, which according to the COT (Commitment of Traders) report presented every Friday shows that last week large speculators accumulated their long positions as the number of contracts increased from the previous 29 300 to 29 600. That means that large speculators continue to trust in the pound and expect it to strengthen.
 

What awaits us this week?

Negotiations between the EU and the UK on the form of the trade agreement will start on Monday. Negotiations can be expected to be very tough, depending on the current perspective of both partners. The United Kingdom has indicated that it is ready to trade with the EU under WTO rules and thus to introduce tariff barriers if EU proposals are likely to put Britain's sovereignty at risk. This attitude is rather negative for the pound.

Also from a macroeconomic perspective, this week will be relatively busy for the British pound. On Monday, PMI data in the manufacturing sector will be reported, on Tuesday in construction and on Wednesday PMI in services that are very important to Britain. Governor BoE Carney will be speaking on Thursday at 18.00 CET, which is expected to be highly volatile on currency pairs with the British pound.

Because March 6, 2020, is the first Friday of the month, the US employment data, the so-called NFP, will be reported, which will also have a significant impact on the GBPUSD pair.

Recent reports on the evolution of the coronavirus epidemic may continue to negatively affect the British pound as well. 

 

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