British Pound: USD/GBP (GBP=X) can still return to May 2019 high if it holds above 1.2764
The Pound-to-Dollar rate retains an upside bias on the charts and could still reclaim its May 2019 high in the weeks ahead, according to technical analysts at Commerzbank, although a narrowing Conservative Party lead in the opinion polls is a risk to the British currency.
Sterling was beaten into retreat last week by a toxic cocktail of domestic and geopolitical uncertainties but technical analysts at Commerzbank say it would take a fall below 1.2764 in order to negate the uptrend that’s been developing since the middle of summer.
“GBP/USD continues to square up to the psychological resistance at 1.3000 and the recent high at 1.3013,” says Karen Jones, head of technical analysis at Commerzbank. “It remains immediately bid above the 1.2764/ 23.6% retracement, initial support is the 20 day ma at 1.2881. Failure at 1.2764 will see a slide to the 200 day ma at 1.2703.”
Pound Sterling: What to Watch
The Pound spent last week in retreat from the Dollar and although technical indicators on the charts are suggesting it will retain an upside bias in the coming days, the political and economic newsflow is arguing for continued losses.
Polls published in The Sunday Times and Sunday Express had the Tory lead retreating this weekend, with results collected after the televised leaders’ debates but before manifestos of the main parties were published.
And a poll-of-polls featured in The Telegraph had the Conservatives on course for a 64 seat parliamentary majority, although others have suggested a lesser majority than that. That same poll reported by The Telegraph predicts a 55 seat loss for the opposition.
The Conservatives frequently command between 42% and 45% in the polls, while the opposition Labour Party has struggled to get above 30%. The Tories have enjoyed a strong lead over Labour since the election was announced but bitter memories of Theresa May’s lead heading into the 2017 ballot, which proved to be erroneous, are containing enthusiasm for Sterling.
“It’s worth noting that it was only after the manifesto launched in 2017 that polling started to truly tighten up,” says Jordan Rochester, a strategist at Nomura. “I would not recommend a fresh GBP long position here as it may only take a few polls showing a Labour party bounce or indeed another gaffe moment in UK politics from the Conservatives to put the market’s current base case in doubt and with it cause GBP’s recent grind higher to come undone.”
A Conservative majority would likely mean the agreement struck by Boris Johnson in October becomes law, taking the UK out of the EU but locking it into ‘transition period’ during which the future relationship is negotiated. Crucially for markets, it would negate the threat of a ‘no deal’ Brexit, while electoral victory would spare the economy and Pound from years more of indecision and delay, if not worse, under an anti-Brexit opposition government.
This is why the Pound has been following the polling lead and implied prospects of the Tory majority closely ever since the election was announced.
“Next week’s calendar will lack market-moving data releases, which will leave GBP being solely driven by the expectations around the elections,” says Chris Turner, head of FX strategy at ING. “For now, with expectations firmly around a Conservative win, sterling is likely to remain rangebound.”
There are no major economic numbers due for release in the week ahead, although the U.S. calendar does feature a number of important releases that will impact the value of the greenback and therefore, the Pound-to-Dollar rate.
An IHS Markit PMI survey pointed last week toward another contraction for the economy in the final quarter, which weighed heavily on the Pound in the Friday session, right after the Philadelphia Federal Reserve manufacturing index rose sharply for the month of November.
That highlights the very real prospect of continued economic divergence between the UK and U.S. in the months ahead.
The U.S. Dollar: What to Watch
The Dollar rose against most major rivals Friday, marking a fourth day of gains for the Dollar Index, although its trajectory in the coming days will be determined by economic figures and developments in the U.S.-China talks.
Consumer confidence figures and the October Chicago PMI will provide insight this week into the recent condition of U.S. households and manufacturers, although the personal consumption expenditures (PCE) price index for October is arguably the highlight of the week on the economic front.
The consumer confidence report is out at 15:00 Tuesday, the PMI at 14:45 Wednesday and the PCE index at 15:00 Wednesday. In the middle of all this, core durable goods orders data for the month of October will be released at 13:30 Wednesday. That’s important component of business invesment, which matters for final quarter GDP growth.
The PCE index is the preferred inflation measure of the Federal Reserve (Fed) and has been running below the 2% target throughout 2019. It declined from 1.4% to 1.3% in September so further weakness in October might incite speculation about more rate cuts up ahead.
“Overall, we see little chance of a turnaround in the recent direction of data in either the eurozone or the US, which should ultimately leave EUR/USD mostly driven by the USD safe-haven flows in relation to trade sentiment,” says Chris Turner, head of FX strategy at ING.
Minutes of the October Fed meeting confirmed last week that sentiments expressed earlier in Washington by Chairman Jerome Powell are widely held on the bank’s committee of rate setters, with many on the FOMC agreeing that rates are “well calibrated”.
The Fed has signalled that its rate cutting cycle is now over for the time being, which has supported the Dollar through much of November and was a factor at play in price action last week. However, most significant for the Dollar in the week ahead will be the next developments in the U.S.-China trade talks.
Investors will be particularly keen to see if President Donald Trump will put his signature to the Hong Kong Human Rights and Democracy Act that passed through Congress last week, because it has scope to further complicate the path toward the ‘phase one deal’ U.S. and China are attempting to formalise.
The bill, which is expected to become law regardless of whether Trump signs it, threatens to remove Hong Kong’s special trade status as well as to impose sanctions on some Chinese officials if the city’s independence is undermined. Passing it already drew a rebuke from China accompanied by threats of an unspecified retaliation if makes it onto the statute book, so it’s possible that signing it could have adverse consequences for the trade talks.
Overall, the bias in prices is: Upwards.
The projected upper bound is: 1.31.
The projected lower bound is: 1.27.
The projected closing price is: 1.29.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 5 white candles and 4 black candles for a net of 1 white candles. During the past 50 bars, there have been 24 white candles and 24 black candles.
A bullish harami occurred (where the current small white body is contained within an unusually large black body). During a downtrend (which appears to be the case with FOREX GBP=) this pattern implies an end to the decline as the bears appear to have exhausted themselves.
During an uptrend the bullish harami pattern is bearish as the bears appear to be gaining strength as the bulls weaken.
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 21.0281. This is not an overbought or oversold reading. The last signal was a sell 4 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 53.39. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 24 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -32. This is not a topping or bottoming area. The last signal was a sell 4 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 19 period(s) ago.
Rex Takasugi – TD Profile
FOREX GBP= closed up 0.003 at 1.286. Volume was 99% below average (consolidating) and Bollinger Bands were 63% narrower than normal.
Open High Low Close Volume___
1.285 1.286 1.284 1.286 1,549
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 1.29 1.27 1.27
Volatility: 5 10 10
Volume: 86,555 105,587 132,973
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FOREX GBP= is currently 1.2% above its 200-period moving average and is in an downward trend. Volatility is low as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of GBP= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on GBP= and have had this outlook for the last 0 periods.
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