It was another volatile session for GBP after MP’s rejected a no-deal Brexit, sending the pound broadly higher and reversing prior losses.
At its peak, GBP/USD was elevated to a 9-month high before settling back within the prior days range, 2% higher. GBP gained the most ground against NZD and USD, although it was only against AUD which it closed to a new cycle high. Regardless, volatility has certainly made its mark on GBP pairs the past 48-hours, with most pairs at least doubling their typical daily ranges over both sessions.
To underscore the pick-up of volatility, EUR/GBP has seen 5 consecutive days with a range exceeding 1%, an occurrence not seen since November 2016. Moreover, each session this week has reversed direction. However, at some point a sustainable move must unfold.
With parliament due to vote and likely extend Brexit, GBP could retain its strength over the near-term as the can gets kicked down the road. Yet with the lack of any real solution, continued strength is also up for debate as, ultimately its direction remains in the hands of politicians. But, for now at least, technicals suggest downside pressure on EUR/GBP.
We outlined the potential for EUR/GBP to top out last Wednesday following its monthly close beneath 0.8260. Our bias remains bearish on the monthly structure, although volatility needs to pick its directional side before a sustainable move materialises.
Price action remains beneath a bearish trendline on the daily chart, and a resistance zone between 0.8620 - 0.8676 is capping any upside. The zone comprises of the third lower high, prior support at 0.8620 and the 20-day average – which effectively means 0.8676 is pivotal for the analysis.
If resistance holds and we see a convincing break of 0.8472, bears would have 0.8300 in their sights. Whereas a break above 0.8676 takes us back within range and brings the 0.8840 high into focus.