Brexit in a week from 16/9 - 22/9/2019

The Brexit deadline is approaching and the UK will leave the EU on January 31,2020.  However, this does not end here because the crucial part is yet to come. Britain will have to negotiate the form of relations with the EU during the transition period and there are many uncertainties.  So what next? And how much has it already cost Britain? Read more in this article.

Fundamental analysis

When the Conservative Party won an overwhelming majority in the British parliament on December 12, 2019, early responses were euphoric and the GBPUSD strengthened sharply, as it was more or less clear that the UK would leave the EU by the end of January 2020 on the basis of an agreement with the EU.
However, it is now clear that this is all just starting, because it is necessary to negotiate the form of relations between Britain and the EU by December 2020 at the latest. Many experts agree that this is too short a time to conclude such a complicated process and voices are emerging that a possible extension cannot be ruled out. However, Boris Johnson does not seem to be in favor of such a move. Then would the so-called hard Brexit threaten again?
Bloomberg estimates Brexit has cost Great Britain £ 130 billion, and by the end of 2020 it will be around £ 200 billion. These costs are caused by the loss of some links to other G7 countries. The uncertainty of the Brexit referendum has led to a deterioration in the business mood and the annual GDP growth in the British economy has fallen from two to one percent.
On Thursday, the Governor of the Bank of England said that interest rates could be cut if weak economic performance persisted. Based on this comment, the GBPUSD depreciated briefly to a two-week low.
From major economic data in the United Kingdom last week there were reported data on Composite PMI, which reached 49.3 compared to 48.5 compared to the previous period. From the US data, employment data was presented on Friday, which was worse than expected. The NFP indicator  reached 145 thousand compared to 256 thousand in the previous period.

Technical analysis as at January 12, 2020

From the weekly chart, see Figure 1, we can see that the price of the GBPUSD is now moving in the range between 1.35 and 1.30 and it is possible that the price will remain in this range until the end of January. For the last two weeks, the price has moved in a weekly range of approximately 200 pips. The price closed at 1.3055 last week.

Figure 1: GBPUSD on weekly chart
On the daily chart, see Figure 2, we can see that the last candlesticks were bearish. But more important is that the price is moving 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, which is now defined by the  EL support and GI resistance trend lines. The price has now reached the support line, which is also near a moving average EMA 50, which often acts as a support as well.

Figure 2: GBPUSD on daily chart

From the point of view of this technical analysis, trades in the long direction would be preferred. The ideal scenario now is to wait for a response to the support line at point L. If a strong bullish candlestick is created here in the lower H4 timeframe (for example, a bullish engulfing candlestick pattern), then this could be a signal to buy. If, on the other hand, the trend line breaks down, then another possible entry for long would be at the first level of support.

Resistance 1 is at a level around 1.3260 - 1.3280.
Resistance 2 is in the broad band 1.3330 - 1.3510. The level was tested and then the price bounced back down.
Resistance 3 is at the level of 1.3700 - 1.3750.
Support 1 is now in the zone 1.2940 - 1.2900.
Support 2 is located in the band 1.2780 - 1.2820.
Support 3 is in the range around 1.2520 - 1.2570. This level is a break of previous resistance.

In addition, we present the overall sentiment of the market, which according to the COT (Commitment of Traders) report, which is presented every Friday, shows that large speculators have been increasing their long positions for several weeks, which means they expect the GBPUSD to appreciate.

What awaits us next week?

Before the UK leaves the EU on January 31, 2020, the British Parliament must pass a law implementing the Withdrawal Agreement Bill (known as the divorce agreement) into British legislation. This law contains rules for the protection of the rights of EU citizens residing in Britain, a customs arrangement in Northern Ireland and an 11-month transition period. The government would like to make this vote by Thursday.
From the macroeconomic data  the UK will report data on GDP and industrial production on Monday. Inflation data will be presented on Wednesday, which will be essential for the Bank of England's next steps and on Friday, retail data will be reported.

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