Technical analysis as at October 6, 2019
The GBPUSD currency pair fluctuated between 1.22 and 1.24 in the past week and the price opened at 1.2290 and closed at 1.2328. On the weekly chart, see Figure 1, there was created a Doji candlestick last week, which stopped the decline from the last week of September. The candlestick signals to us the indecision of the market, because the upper and lower wicks are approximately the same size and the difference between the opening and closing prices is not very significant.
Figure 1: GBPUSD on weekly chart
On the daily chart, see Figure 2, we can see that in the past week the price was around the value of support, which we identified in the range between 1.2280 and 1.2330.
The first higher high may indicate that the turn of the downtrend is approaching. To confirm this, it is now necessary for the price to create a higher low. Is it possible that this low is starting to form right now? We can't rule it out. In any case, the price touched the bottom of the growing channel we mentioned last week, while the price touched the Fibonacci level of 61.8, on which there are often reactions.
From Figure 2 we can see that the faster EMA 50 (red) is still below SMA 100 (green), indicating a continued downtrend. Daily candlesticks of the last week, however, gradually formed higher lower wicks, in other words, the low of these candles increases, which indicates increasing momentum for the price moving upwards.
Figure 2: GBPUSD on daily chart
If level 1.22 breaks down, we can expect another drop to level 1.20. If support at 1.22 - 1.23 keeps the price and if resistance to the moving average of SMA 100 is subsequently broken, we can expect further growth.
Resistance 1 is at a level of around 1.250-1.2570.
Resistance 2 is approximately 1.2750 - 1.2850. Here is a confluence with the Fibonacci level 61.8 and the resistance that was created on May 17, 2019, by breaking the previous support, see Figure 1.
Support 1 is in zone 1.2280-1.2330.
Support 2 is in the range of 1.20 - 1.2050.
Other support levels are around 1.22 and 1.21. They are both whole numbers and also they are values that lie at Fibonacci levels 61.8 and 78.6, see in Figure 1.
Should the United Kingdom agree with the EU on the revised withdrawal agreement, this currency pair could be expected to continue to strengthen sharply.
What awaits us this week?
In the previous article, we announced the possibility of a vote of no confidence in the Johnson government. This has not yet happened. In recent days, however, we have seen the situation around Brexit negotiations change very quickly. We, therefore, believe that the vote of no confidence in Boris Johnson’s government still exists and its likelihood will increase if Boris Johnson wants to circumvent the law in any way to avoid asking the European Union for Brexit delay if he fails to negotiate a Brexit withdrawal agreement.
In this context, it will, therefore, be very interesting to follow further developments regarding the proposed amendment to the Brexit agreement. It is possible that by the end of the week the EU official position on this proposal could be known.
From a macroeconomic point of view, further GDP data will be reported next week. In addition, data on the Halifax House Price Index will be presented as well as important data on production output, which accounts for 80% of total industrial output in the UK. Trade balance data will also be presented.
The impact of the GBPUSD will also be affected by US data. Next week, the FOMC meeting minutes will be presented at 20:00 on Wednesday, offering a detailed look at the reasons for the Fed's interest rate talks held two weeks ago. In the case of notes on the weakening of the economy and considerations of possible support for economic growth may be a signal to the US dollar weakening. Recently reported weak PMI data - the Purchasing Managers Index in the US could support these considerations.
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