Daily Commentary
 | 09/10/2019

Brexit hopes dim further

The pound weakened substantially yesterday as the hopes for an agreement in Brexit seem to be dimming constantly. It would be indicative of the situation that media yesterday reported that Angela Merkel, the German Chancellor told UK’s PM Johnson, that a deal is “overwhelmingly unlikely”. A similar comment was reported to have been made by Irish PM Leo Varadkar who reportedly stated that it is “very difficult” to seal a Brexit deal next week. Meanwhile the blame game is on, as the UK PM stated that a Brexit deal is impossible with EU demands, while EU’s Tusk accused Johnson of playing the blame game instead of focusing on the issue. The recent developments highlighted once again the possibility of a hard Brexit and worries sent cable to one of the lowest levels of the month. We maintain the view that a further extension still remains the most possible scenario, yet danger still exists for a hard Brexit. Should we see further negative headlines about Brexit we could see the pound weakening further. Cable dropped to one of its lowest levels for the past month braking out of the descending triangle, as mentioned in yesterday’s analysis and testing the 1.2205 (S1) support line. We maintain a bearish outlook for the pair’s direction, albeit the pair’s failure to break the 1.2205 (S1) support line could provide some stabilisation. Should the bears dictate the pair’s direction, we could see cable, breaking the 1.2205 (S1) support line, aiming for the 1.2110 (S2) support level. Should the bulls take over, we could see the pair, aiming if not breaking the 1.2310 (R1) resistance line.

US-Sino relationships still dominate.

USD weakened against safe have currencies such as the JPY and CHF, while gained against the EUR and the GBP. After the US decision to blacklist a number of Chinese companies over the treatment of Muslim minorities, the situation become more tense as the US also imposed visa restrictions on Chinese officials, angering Beijing. Negotiations are still to take place on Thursday and Friday and further developments are expected to influence the USD’s direction. It should be noted that the USD got some support yesterday by Fed Chair Powell’s comments, which set in doubt a possible rate cut in the October meeting, while analysts also mention possible safe haven inflows for the greenback. In the absence of substantial financial releases today, we expect fundamental issues to play a key role for the USD as well as Fed Chair Powell’s speech. EUR/USD dropped yesterday te3sting the 1.0950 (S1) support line. We maintain a bearish outlook for the pair and for our bearish outlook to change we would require the pair to clearly break the downward trendline incepted since the 25th of June. Should the pair remain under the selling interest of the market, we could see it breaking the 1.0950 (S1) support line and aim for the 1.0910 (S2) support level.

Other economic highlights today and early tomorrow

With a rather light calendar today, in the American session, we get the US JOLTs Job Openings figure for August and the EIA weekly crude oil inventories figure. Later, the Fed’s minutes are to be released, however lot has changed since the Fed’s decision to cut rates on the 18th of September. We tend to focus on what prerequisites the bank would require for a further rate cut and we could see the release having a substantial effect on the USD. In the Asian session, tomorrow, we get UK’s RICS housing survey for September, from Japan we get the Core Machinery orders growth rate for August and the corporate goods prices for September and from Australia the housing finance growth rate for August is due out. As for speakers Fed Chair Powell and BoJ’s Masayoshi speak.

GBP/USD H4

• Support: 1.2205 (S1), 1.2110 (S2), 1.2020 (S3)
•Resistance: 1.2310 (R1), 1.2400 (R2), 1.2610 (R3)

EUR/USD H4

• Support: 1.0950 (S1), 1.0910 (S2), 1.0865 (S3)
•Resistance: 1.1000 (R1), 1.1050 (R2), 1.1105 (R3)