GBP/USD drops to key support as fears of hard Brexit returns
Fawad Razaqzada December 17, 2019 6:59 AM
The pound was hit by a double whammy of bad news this morning.
The pound was hit by a double whammy of bad news this morning. First and foremost, it was reports that the UK government will block the EU transition extension beyond 2020, raising concerns that this could potentially result in a hard Brexit. Then, the latest wages data came in below expectations while unemployment claims grew more than anticipated. As a result, the GBP/USD further extended its post-election losses to hit a low so far of 1.3156. But at the time of writing, the cable was coming off its worst levels as the buyers attempted to defend a key short-term support level around 1.3180.
No extension to Brexit transition period
The pound fell and UK Brexit-linked stocks took a hit this morning after Boris Johnson said there will be no extension to the transition period. Investors were worried that this may mean the UK could still crash out of the EU without a trade deal. The Prime Minister was previously expected to extend the end of 2020 deadline, so that the government would be able to negotiate a good trade deal given that so much time had been wasted during this year.
UK wages disappoint
The pound was also hit by disappointing UK data. Weekly wages increased by 3.2% year-on-year in the three months to October. This was weaker than 3.4% expected and was down from an upwardly revised 3.7% in September. Jobless claims also disappointed at 28,800 vs. 21,200. However, the unemployment rate remained steady at 3.8%, beating forecasts for a rise to 3.9%. Meanwhile, a closely-watched survey of about 550 manufacturers asking respondents to rate the relative level of order volume expected during the next 3 months, fell further below zero to indicate expectations are for lower order volumes. CBI’s Industrial Order Expectations index printed -28 vs. -25 expected and -26 last.
Coming up: US data dump and UK CPI
The focus for GBP/USD market participants will turn to the data dump in the US later, when we have the latest Housing Starts, Building Permits, Industrial Production, JOLTS Job Openings and IBD/TIPP Economic Optimism figures. Then the focus will return back to the UK as the latest inflation data is published on Wednesday morning. UK CPI is seen falling further below the Bank of England’s 2% target to 1.4% from 1.5% previously. Core CPI is expected to have remained unchanged at 1.7%. And RPI is seen edging down to 2.0% from 2.1% last.
GBP/USD testing key support
Source: Trading View and FOREX.com.
The cable was clinging onto key support around the 1.3180 level at the time of writing. As per the hourly chart, this was the breakout area when the exit polls were released on Thursday night. The big jump from this level meant that price had effectively gapped higher, but it has now returned to fill this inefficiency. Therefore, if support holds here, then it is reasonable to expect price to stage its next up leg in the days ahead. However, a failure and we could be talking about 1.3000 again. Short-term resistance comes in at 1.3250, followed by 1.3320. These levels were formerly support.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.