Brexit in a week from 9/12 - 15/12/2019
December 12, 2019 was marked in the history of the British elections as one of the most crucial in the last few decades. It was clear that the outcome of the elections would be decisive to whether Brexit will occur or not. Pre-election polls advised the Conservative victory, but a few expected the Conservative Party under Boris Johnson to gain an overwhelming majority in Parliament. Out of a total of 650 mandates, the Conservatives gained 365 while opposition Labor 203.
Immediately after the elections, Boris Johnson stated that there are now no obstacles to brexit becoming a reality by January 31, 2020. Indeed, with the prevalence he now has in the British Parliament, it would no longer be a problem to push through the Brexit Agreement and its related implementing legislation in Parliament.
However, the approval of the Brexit Agreement is only the first part of the project. In 2020, until December, there will be a transitional period during which the UK will negotiate with the EU on the form of future business relations. And there are still many uncertainties.
In terms of economic data, the UK reported GDP data on Tuesday, which was 0.7% on a year-on-year basis (0.9% in the previous period) and manufacturing, which showed a month-on-month improvement of 0.2% ( previous period - 0.4%).
The Fed's decision-making session did not bring anything new. The rate remains at 1.75% with the note that the increase would only take place after the rate of inflation accelerated.
Technical analysis as at December 15, 2019
From the weekly chart, see Figure 1, we can see that the price broke through the resistance level in the previous week, as a result of the election results, when the Conservative victory eliminated one great uncertainty as to whether or not Brexit would be. The GBPUSD created a long bullish candlestick on the weekly chart, which reached 1.3514 high and closed a week at 1.3332.
Figure 1: The GBPUSD currecy pair on a weekly chart
On the daily chart, see Figure 2, we can see that the price continues to move in an upward trend. This is confirmed by the fact that it created a higher high (point D) and a higher low (point E), and also the crossing of the EMA 50 (orange line) above the SMA 100 (blue line) at point F confirms the increasing trend. At point G we have another higher high. At point H, the previous level of resistance was broken when the price had previously consolidated in a side movement for six weeks. The price is also moving in the growing channel.
The price has now reached another resistance, which it surpassed briefly, but closed below it. Now the ideal scenario would be a correction to the level 1.3180, where the price broke through resistance (point I), and then continued upwards. The second scenario is that the current resistance barrier breaks without correcting.
Figure 2: The GBPUSD on a daily chart
is at the level of about 1.3350 - 1.3380. The price closed below this level last week.
is approximately 1.350 - 1.3510. The level was tested but the price bounced back down.
is at the level of 1.3650 - 1.3700.
is now in the zone 1.3150 - 1.3180.
is located in the band 1.2980 - 1.3010.
is in the range around 1.2750 - 1.2780. This level is a break of previous resistance.
What steps will follow next?
In particular, Boris Johnson convenes a parliament and forms a new government. It is possible that this week he will submit Brexit laws in the British Parliament, which could happen 20. 12. 2019. As soon as he succeed to approve Brexit legislation in British Parliament, the way for leaving the EU will be cleared.
From the macroeconomic point of view, Thursday's Bank of England meeting on interest rates will be crucial this week.
For the time being we will interrupt our serie and we will continue with Brexit updates in January 2020.
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