Daily Brexit update Technical analysis outlook on GBPUSD GBPJPY

Today 15 Jan 2019, members of the U.K Parliament will cast their votes on the government’s much “hated” Brexit deal which PM May has insisted that it is the best deal that will strike a balance between the interests of the pro-Brexiters and the “Remain” camp.

Despite the last few days of lobbying from PM May to gather parliamentary support for the deal, it is now expected that her government is set to see the Brexit deal rejected in Parliament. As reported by several media outlets that at least 70 members of her Conservative Party as well as allies in the Democratic Union Party have pledged to join the opposition members of the U.K Parliament to vote against the deal. Please click here for a detailed commentary by my colleague, Ken on the “4 Things To Watch”

The “guessing game” in the markets has now turned its focus on the margin of defeat that will decide on the respond from EU and the U.K government on the next steps to adopt with the possibility of an extension of Brexit from 29 Mar 2019 to early July 2019 as both sides return to the negotiation table. Let’s us now look at the GBP/USD and GBP/JPY from a technical analysis perspective.

Short-term technical analysis outlook on GBP/USD

Key elements

• Since its 20 Sep 2018 high of 1.3299, the GBP/USD has continued to evolve within a choppy
  “Descending Wedge” range configuration. The on-going rebound of 500 pips from the 03 Jan 2019 low of 1.2440 is now coming close to the “Descending Wedge” range resistance at 1.3000 (see daily chart).
• The current rebound seen from the 03 Jan 2019 low is now also coming close to the 76.4% Fibonacci retracement of the previous slide from 07 Nov 2018 high to 03 Jan 2019 low which coincides closely with the 1.3000 range resistance. Interestingly, previous rebounds that have occurred within the “Descending Wedge” range stalled at the 76.4% retracement of its prior slide; 12 Oct 2018 high to 30 Oct 2018 low and 20 Sep 2018 high to 03 Oct 2018 low. Similar fractals geometry in progress (see daily chart).
• The daily RSI oscillator is now coming close to a significant overbought zone at 78/72 where it has coincided with previous swing highs in the price action of the pair (20 Sep 2017, 25 Jan 2018, 17 Apr 2018 & 20 Sep 2018) before a slide in price action occurred.
• The shorter-term 4-hour Stochastic oscillator has flashed a bearish divergence signal at its overbought zone which indicates that the recent rebound from 03 Jan 2019 low has started to lose its upside momentum.

Key levels

Pivot (key resistance): 1.3000

Supports: 1.2800, 1.2710 & 1.2490/85

Next resistances: 1.3170 & 1.3280

Conclusion

If the 1.3000 pivotal resistance is not surpassed and a break below 1.2800 may see another round of minor decline for the GBP/USD within its “Descending Wedge” range configuration to target the next supports at 1.2710 and 1.2495/85 (the recent swing low areas of 12 Dec 2018 & 03 Jan 2019).

On the other hand, a clearance above 1.3000 invalidates the bearish scenario for an extension of the corrective rebound towards the next resistances at 1.3170 and 1.3280 (medium-term swing high areas of 09 Jul/20 Sep 2018).    

Short-term technical analysis outlook on GBP/JPY

Key elements

• The on-going rebound of 860 pips from the recent flash crash low of 131.75 printed on 03 Jan 2019 has reached an intermediate resistance zone of 140.55/90 which is defined by the former medium-term swing low area of 15 Aug 2018 and the 50% Fibonacci retracement of the last decline from 08 Nov 2018 high to 03 Jan 2019 low.
• The daily RSI oscillator is now at a corresponding resistance at the 50 level with the shorter-term 4-hour Stochastic oscillator that is coming close to an extreme overbought level.

Key levels

Resistances: 140.90, 142.80 & 145.70

Supports: 138.60 & 134.45

Conclusion

Mix elements for the GBP/JPY. Prefer to have a neutral stance between 140.90 and 138.60 (the minor ascending channel support from 03 Jan 2019 low & the pull-back of the former descending trendline resistance from 08 Nov 2018 high). Only a break above 140.90 is likely to open up scope for an extension of the mean reversion rebound to target the next intermediate resistances at 142.80 and 145.70.

On the other hand, failure to hold at 138.60 sees another round of decline to retest the 03 Jan 2019 swing low area of 134.45 in the first step.

Charts are from eSignal