Market News & Analysis
France’s ‘non’ dials up sterling pressure
Ken Odeluga October 26, 2019 6:50 AM
Emmanuel Macron’s tough love and Johnson’s threat to pull his deal sets the pound up for a rougher week ahead
Could France, the only country not to have supported giving Britain an extension till the end of January, really be riding to Boris Johnson’s aid?
The speculation is that France’s President Emmanuel Macron blocked an EU attempt to delay Brexit for three months, raising the prospect that the government could remain in the dark re. an extension until just hours before the 31st October deadline. The idea is that this ‘tough love’ would be an incentive for UK lawmakers to approve PM Johnson’s deal. They’ve agreed to it but rejected his fast-track formula for pushing it into law. Macron favoured an extension till 30th November, or even sooner. Other EU 27 leaders baulked at the higher no-deal risks that gambit would entail.
The internal EU impasse helped delay a decision till Monday, after Parliament has voted on Johnson’s latest call to end the Brexit “nightmare” with an election, on 12th December. But he needs a two-thirds majority in Parliament to get one, and Labour is still saying it won’t get behind an election till….yep, the EU grants an extension. We’re going around in circles, and the pound is slipping even further from Monday’s 5-month highs. Assuming Johnson loses the motion for an election and the EU okays an extension, the pound could stabilise again. However, the PM’s aides are already murmuring that he may scratch his Brexit bill entirely if he loses the vote, due to the risk of further amendments that could require the re-opening of discussions with Brussels. Some clarity will come by late Monday, though not much.
The short-term view makes clear rising risks to the closely watched mid-$1.28 levels that have provided critical support over the last week. A top almost at $1.30 dead at the beginning of the week has been followed by a down leg that’s chopped away at the band of lows mapping the region of prior support, and hence switching it to resistance:
- Most recently circa $1.2835: notched by two late-NY session hourly lows from Thursday
- Multiple tags close to $1.2865 concentrated on this mid-week and late last week
Price action, which has in this session drifted higher, suggesting at least some profit taking, now posits the question of whether cable is ready to attack the region anew, though this time from the underneath, heading back up.
GBP/USD – Hourly [1945 BST 25/10/2019]
Source: City Index
The possibility of a bullish continuation becomes clearer in somewhat wider focus, where the reversal since 21st October forms what could be deemed a bull flag, given appropriate corroboration. Friday’s ‘Spinning Top’ candle – upper/lower shadows that exceed the small body – can signify indecision to the extent of near stasis. Succeeding sessions must break its range to indicate the market’s ready to move.
Note the top nuzzles what’s now the intermediate resistance of $1.2865. With RSI turning lower, odds don’t appear to favour a sustained break higher sometime soon, suggesting a visit to $1.275 – confirmatory low on 17th October – should be expected sooner. A break of the latter could thereby bring final invalidation of October’s bull trend.
GBP/USD – Daily [2015 BST 25/10/2019]
Source: City Index
From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.