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
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.