- Intraday Comment
-
25.11.2016, 2pm
• The dollar traded lower against most of its G10 peers during the European morning Friday, ranging from -0.40% against JPY to -0.15% vs AUD. The greenback was virtually unchanged against CAD, SEK and GBP.
• UK’s 2nd estimate of GDP showed that the economy expanded by 0.5% qoq in Q3, in line with expectations, and unchanged from the 1st estimate. This confirms that “Brexit” uncertainty may have begun to weigh on growth prospects, while hard negotiations could make investors even more nervous in the foreseeable future. In the Autumn Statement, although the new Chancellor noted that the UK economy has shown a great resilience following the referendum, he noted that it will grow more slowly than previously expected. At its latest policy meeting, the Bank of England acknowledged the better-than-expected economic performance of the nation as well, and dropped its forward guidance for further easing. At the same time, it raised its near-term GDP and CPI forecasts. We share Chancellor’s view that the UK may continue growing in the quarters to come, but at a slower pace than previously anticipated. Nevertheless, we see the risks to our assessment as tilted to the downside given that the danger of “hard Brexit” negotiations may deteriorate investors’ and consumers’ confidence further.
• EUR/GBP traded somewhat higher during the European morning Friday to break above 0.8490 (S1). Nevertheless, the rebound was short-lived and then the rate retreated to settle near the aforementioned level. The short-term trend remains to the downside in my view as the rate is still trading within the downside channel that has been containing the price action since the 15th of November. Nevertheless, our momentum studies give evidence that another corrective rebound may be in the works for now. The RSI rebounded from slightly above its 30 line and now looks to be headed towards 50, while the MACD, although negative, has turned up and crossed above its trigger line. What is more, there is positive divergence between both these indicators and the price action. I believe that a clear break above 0.8600 (R1) is possible to signal a short-term trend reversal and perhaps initially aim for the 0.8700 (R2) zone. Switching to the daily chart, as long as the pair is trading above the uptrend line taken from back at the low of the 17th of November, I would consider the longer-term path to be positive. As such, I would treat the short-term downtrend as a corrective phase of that longer-term uptrend for now.
• Support: 0.8490 (S1), 0.8415 (S2), 0.8330 (S3)
• Resistance: 0.8600 (R1), 0.8700 (R2), 0.8770 (R3)
