Daily Analysis | 29 November 2017
The British pound skyrocketed yesterday, following a report from the Daily Telegraph that the UK and the EU finally reached an agreement on the Brexit divorce bill. This was quickly denied by a UK government official, causing sterling to give back some of its report-related gains, before rebounding again a few minutes later. Despite the denial, the story may actually be accurate, as the Financial Times ran a similar report shortly thereafter, adding validity to the prospect.
Even though GBP could gain somewhat further in the near-term, in case of an official confirmation that the Brexit negotiations will indeed move forward, we are not ready to call for a rally in the currency yet. Many uncertainties remain regarding the future of the Brexit negotiations. The divorce bill was only the first issue to be settled on a long list of subjects. Now, the negotiations will likely move on to the much more complex subject of trade, where we could very well encounter new disagreements and fresh delays, something that could keep any rallies in GBP limited in the foreseeable future.
GBP/USD was moving lower throughout the European morning Tuesday, before it found fresh buy orders near the 1.3200 (S3) support territory and subsequently, it skyrocketed following the Daily Telegraph report to hit resistance near the 1.3375 (R1) zone. The price structure on the 4-hour chart still suggests a short-term uptrend, but in order for us to trust further near-term advances, we would like to see a clear and decisive break above the 1.3375 (R1) barrier. Something like that would signal a forthcoming higher high on the 4-hour chart and could set the stage for further advances, initially towards the 1.3420 (R2) hurdle.
Zooming out to longer-term timeframes, we see that Cable is approaching the crossroads between an uptrend line taken from the low of October 2016, and a longer-term downtrend line taken from the highs of July 2014. As such, even though we may experience further advances in the near-term, we would remain flat with regards to the pair’s broader direction. A break of either of the aforementioned lines is needed to make the longer-term picture clearer. A clear close above the downtrend line could turn the overall outlook to positive, while a break below the uptrend line could turn the picture to negative.
- Support: 1.3300 (S1), 1.3240 (S2), 1.3200 (S3)
- Resistance: 1.3375 (R1), 1.3420 (R2), 1.3460 (R3)
EUR/USD drifted lower yesterday, breaking below the support (now turned into resistance) barrier of 1.1900 (R1) to find fresh buy orders near the 1.1830 (S1) zone and then, it rebounded somewhat. Despite this pullback, the near-term picture still appears to be positive, as the rate continues to trade above the short-term uptrend line taken from the low of the 7th of November. As such, we could see the bulls take the reins again soon and aim for another test of the 1.1900 (R1) level, where a clear break could set the stage for further advances towards the 1.1960 (R2) barrier. On the downside, a break below the crossroads of the 1.1830 (S1) level and the aforementioned short-term uptrend line could signal that the near-term bias is back to neutral, and would lead us to begin to examine the case for further declines.
From the US we get the 2nd estimate of GDP for Q3. Economic growth is expected to be revised upwards, something that could prove somewhat positive for the greenback. We also get the core PCE index, for the same quarter.
As for the speakers, we will hear from Fed Chair Janet Yellen, New York Fed President William Dudley, and BoE Governor Mark Carney. Market attention may be primarily on Yellen, as she will be testifying before the Senate Joint Economic Committee regarding the US economic outlook.
- Support: 1.1830 (S1), 1.1770 (S2), 1.1710 (S3)
- Resistance: 1.1900 (R1), 1.1960 (R2), 1.2000 (R3)
US equities rally as Senate accelerates tax-reform vote
US equity indices rallied yesterday, following news on the tax-reform front. The Senate Budget Committee pushed the tax bill forward, setting the stage for a vote on the Senate floor as early as tomorrow. This will likely be the key driver for stocks and the dollar over the next days, as the tax overhaul process is at a very critical stage. Firstly, many details still remain to be settled before the Senate actually votes. Perhaps most importantly, the margin of error is very small, as the Republicans can only afford to lose two votes from within their own party, and some Republican “fiscal hawks” in the Senate have already expressed reservations about the bill in its current form.
During the European day, we’ll get the German preliminary CPI for November. The CPI rate is expected to rise to +1.7% YoY from +1.5% YoY previously. Such an uptick could raise speculation for a similar reaction in Eurozone’s CPI, due out tomorrow, and thereby prove positive for the euro.
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