Brexit Latest News:
- With the Labour party agreeing to a general election, UK citizens will head to the polls – again – in the second week of December to determine the next UK prime minister.
- The British Pound has seen short-term (overnight to one-month) volatility readings cool off considerably, a sign that GBP-crosses may be ready to calm down after an explosive October.
- Retail trader positioning suggests that the British Pound can still gain in the days ahead.
Looking for longer-term forecasts on the British Pound? Check out the DailyFX Trading Guides.
A Brexit deal is not out of reach, and fears of a no-deal, hard Brexit have been quelled for the time being. Now that UK Prime Minister Boris Johnson and his EU counterparts have formally agreed to a Brexit extension to the end of January, the UK has to ‘pay up.’
In other words, in exchange for an extension, EU officials wanted a meaningful reason to grant such a request: a general election or a second referendum. Perhaps UK PM Johnson is making the same ill-fated mistake that his predecessor Theresa May made back in June 2017, when she called for a snap election and saw her Tory party lose its majority in UK parliament.
Brexit Vote – Next Steps
With the Labour party agreeing to a general election, UK citizens will head to the polls – again – in the second week of December to determine the next UK prime minister. The rumored dates for a general election are either December 9 (Monday) or December 12 (Thursday).
Betting markets favor UK PM Johnson to retain power, but if not, the second most likely outcome is a hung parliament. Yet it is very likely that the Tories, Labour, and Liberal Dems (among others) release various amendments to UK PM Johnson’s Brexit bill as they jockey for electoral positioning. Those amendments will likely be released in several weeks’ time – although depending upon what each party proposes, who knows if a general election will proceed at all (see: Labour insisting that EU citizens are eligible to vote, even though they have never done so in prior UK general elections).
The British Pound has seen short-term (overnight to one-month) volatility readings cool off considerably, a sign that GBP-crosses may be ready to calm down after an explosive October.
GBP/USD Rate Technical Analysis: Daily Chart (October 2018 to October 2019) (Chart 1)
GBP/USD’s sharp bullish move in October has stalled out in recent days, returning back to the daily 8-EMA. But GBP/USD remains above the daily 8-EMA, 13-, and 21-EMA envelope, which is still in bullish sequential order. Daily MACD has narrowed in bullish territory at its highest level since January, while Slow Stochastics are holding in overbought territory. With the descending trendline from the April 2018 and March 2019 highs broken, and GBP/USD rates above the 61.8% retracement of the “post-Brexit vote trading range” – the October 2016 low to the April 2018 high – at 1.2849, there still may be upside potential.
GBP/USD RATE TECHNICAL ANALYSIS: WEEKLY CHART (JUNE 2016 TO October 2019) (CHART 2)
Despite last week’s bearish outside piercing candle, there has been a lack of follow-through at the start of this week. GBP/USD remains above the weekly 8-, 13-, and 21-EMA envelope, while weekly MACD has started to trend higherin bullish territory, while Slow Stochastics are nestled in overbought territory. GBP/USD continues to hold above the ascending trendline from the October 2016 and December 2018 lows, as well as the descending trendline from the April 2018 and March 2019 highs.
IG Client Sentiment Index: GBP/USD Rate Forecast (OCTOBER 29, 2019) (Chart 3)
GBP/USD: Retail trader data shows 54.9% of traders are net-long with the ratio of traders long to short at 1.22 to 1. The number of traders net-long is 1.0% higher than yesterday and 4.0% higher from last week, while the number of traders net-short is 3.9% higher than yesterday and 17.2% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.
GBP/JPY Technical Analysis: Daily Rate Chart (October 2018 to October 2019) (Chart 4)
GBP/JPY has not made much progress over the past two weeks, holding below the descending trendline resistance (dating back to the January 2018 high) as well as the 50% retracement of the 2016 to 2018 low/high range at 140.70. But more gains may not be out of the question given GBP/JPY’s bullish momentum profile. GBP/JPY rates remain above the daily 8-, 13-, and 21-EMA envelope, which is still in bullish sequential order. Slow Stochastics are holding in overbought territory, while daily MACD remains near its most extreme bullish reading of the past year. A bullish breakout is not out of the question.
GBP/JPY Technical Analysis: Weekly Rate Chart (October 2016 to October 2019) (Chart 5)
Like GBP/USD, GBP/JPY rates established a bullish outside piercing bar last week and but have not seen considerable follow through to the downside. GBP/JPY rates remain well-above their EMA envelope, and the weekly 8-, 13-, and 21-EMAs are in bullish sequential order.Weekly MACD has advanced above its signal line into bullish territory,while Slow Stochastics are holding in overbought territory. The directional bias on higher timeframes remains bullish.
IG Client Sentiment Index: GBP/JPY Rate Forecast (OCTOBER 29, 2019) (Chart 6)
GBP/JPY: Retail trader data shows 46.2% of traders are net-long with the ratio of traders short to long at 1.16 to 1. In fact, traders have remained net-short since Oct 22 when GBP/JPY traded near 139.862; price has moved 0.1% higher since then. The number of traders net-long is 4.5% higher than yesterday and 3.2% higher from last week, while the number of traders net-short is 5.0% higher than yesterday and 16.8% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/JPY prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/JPY-bullish contrarian trading bias.
EUR/GBP Technical Analysis: Daily Rate Chart (October 2018 to October 2019) (Chart 7)
Since breaking below the 61.8% retracement of the 2019 low/high range at 0.8798 in mid-October, EUR/GBP rates have steadily declined and settled into a short-term band around 0.8600. EUR/GBP rates are still below the daily 8-, 13-, and 21-EMA envelope, suggesting the recent pause in selling may be just that – a pause. Slow Stochastics are hovering in oversold territory, and daily MACD remains deep in bearish territory. Traders should be open to more weakness in EUR/GBP.
EUR/GBP Technical Analysis: Monthly Rate Chart (1994 to 2019) (Chart 8)
EUR/GBP rates have been trading sideways for nearly three years. The bullish breakout attempt higher through the descending trendlines from the 2008 and 2015 highs and 2008 and 2016 highs failed; the inverted hammer in August saw follow through to the downside in September.
On the monthly timeframe, momentum continues to shift lower. Monthly MACD has issued a sell signal (albeit in bullish territory), while Slow Stochastics have already turned lower (in bullish territory as well). Until the 0.8472 to 0.9307 range breaks – until there is a clear shape of Brexit – traders may find themselves less anxious simply by staying away from EUR/GBP. A move below 0.8472 would suggest a significant, longer-term top has developed in EUR/GBP rates.
IG Client Sentiment Index: EUR/GBP Rate Forecast (OCTOBER 29, 2019) (Chart 9)
EUR/GBP: Retail trader data shows 64.6% of traders are net-long with the ratio of traders long to short at 1.82 to 1. In fact, traders have remained net-long since Oct 14 when EUR/GBP traded near 0.87463; price has moved 1.3% lower since then. The number of traders net-long is 1.9% lower than yesterday and 2.7% higher from last week, while the number of traders net-short is 8.8% higher than yesterday and 3.3% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBP prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/GBP price trend may soon reverse higher despite the fact traders remain net-long.
FX TRADING RESOURCES
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
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