Daily Commentary
 | 11/10/2018

Brexit withdrawal deal, 80-85% agreed

The pound rallied on Wednesday as EU chief negotiator Michel Barnier said that the withdrawal deal, was agreed by 80-85%. He also stated that the EU intents to have Irish border controls after Brexit “in the least intrusive way possible”. It should be noted, that both EU and UK officials also stated, that obstacles are still present for the two sides to reach a conclusive deal. Please be advised that, should there be a negative turn in the Brexit negotiations, we could see an asymmetrical response of the pound to the downside as the market mood could be set towards an agreement. As a possible Brexit deal draws near, volatility could continue to rise for GBP pairs.

Cable strengthened on Wednesday, breaking the 1.3215 (S1) resistance line, now turned to support. Should the good news about Brexit continue to reel in, we could see further support being provided for the pound. Also on the technical side, it should be noted that the RSI indicator in the 4 hour chart, has reached the reading of 70 implying a possible overcrowded long position. Should the bulls continue to dictate the pair’s direction we could see the pair breaking the 1.3285 (R1) resistance line, while if the bears take over, the pair could break the 1.3215 (S1) support line and aim for the 1.3150 (S2) support barrier.

US Dollar weakens as US bond yields drop further

The US Dollar weakened against a number of its counterparts, as US bond yields dropped even further yesterday. As per media, the benchmark US 10 year Treasury yields was pushed further down to 3.1931%, from yesterday’s 3.2100%. The recent financial data bolstered the possibility of the upcoming rate hikes by the Fed and weakened substantially stock markets. Analysts point out that, the S&P 500 is looking very weak and negative and that is putting fear into investors. It should also be noted, that with stock markets going down, safe havens such as gold and JPY could be on the rise providing some shelter. Should there be a further drop of the US treasury yields, we could see volatility continue for the USD.

USD/JPY tumbled yesterday, breaking the 112.80 (R1) support line, now turned to resistance and tested the 112.05 (S1) support level. As the downward trend-line, incepted since the 4th of October, remained intact after yesterday’s testing and actually steepened, we retain our bearish bias. Please note, that on a technical level the RSI indicator in the 4 hour chart, is about to break the level of 30, implying a possible overcrowded short position. Should the market continue to favor the pair’s short positions, we could see it breaking the 112.05 (S1) support line and aim for the 111.20 (S2) support level. Should on the other hand the pair come under buying interest, we could see it aiming if not breaking the 112.80 (R1) resistance line opening the way for breaking the prementioned downward trend-line.

In today’s other economic highlights:

During the European session, we get France’s final release of the CPI (EU Norm.) rate for September and from Sweden the CPI rate for September. In the American session, we get from the US the CPI rates for September and later on, the EIA weekly crude oil inventories figure. As for speakers, BoE’s MPC member Gertjan Vlieghe will be speaking today and the ECB is about to publish the account of its last monetary policy meeting. Please note that, Oil prices dropped considerably yesterday and should you be interested on further news and technical analysis about the black gold, please refer to our Oil weekly outlook, due out later today.

USD/JPY 4H

Support: 112.05 (S1), 111.20 (S2), 110.50 (S3)

Resistance: 112.80 (R1), 113.60 (R2), 114.75 (R3)

GBP/USD 4H

Support: 1.3215 (S1), 1.3150 (S2), 1.3080 (S3)

Resistance: 1.3285 (R1), 1.3360 (R2), 1.3400 (R3)