KonstantinAnissimov

Weekly Recap for Pound Sterling: December 7-13

FX:GBPUSD   British Pound / U.S. Dollar
GBP/USD

The key event of the 7th December week for GBP/USD was Brexit trade deal talks between British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen during dinner in Brussels on Wednesday, 9th December. The official statement of both sides remaining ‘far apart’ after the end of the dinner increased selling pressure behind cable on Thursday and Friday.

GBP/USD opened the week of 7th December at 1.3409 and took a downswing of 193 pips between 6:00 and 10:00 UTC . Later in the day, high-level volatility continued, and the pair managed to recover much of the losses, closing Monday’s session at 1.3375. On Tuesday, 8th December, the pair continued slipping downwards and edged down to a local low of 1.3289 mid-day. The losses were largely retraced later in the day, with the pair closing Tuesday at 1.3350.

The expectation of a breakthrough in the Brexit trade deal kept up the pound bulls’ hopes, which resulted in GBP/USD rising to 1.3478 during the day. But all of that positivity was largely reversed by the negative news coming from Brussels. On Thursday, 10th December, the falling continued, regardless of the positive U.K. manufacturing and industrial production figures and the U.K. month-on-month GDP for October matching the 0.4% change expectations.

On Friday, 11th December, PM Johnson’s warning of no deal alarmed the traders even further, and the selling continued on. As a result, the pair slipped under the 1.3143 daily support level for a short time, but bounced quickly to 1.3180, being supported by the level and the 50-day SMA . Later in Friday’s trading, cable even jumped above 1.3250, but was unable to hold the local gains and secured a place at 1.3218 at the week’s close.
The week’s trading result for GBP/USD increases the risks of a discontinuation of the uptrend on the daily timeframe from the technical point of view. The fundamental picture behind the Brexit trade deal remains the main driver of such risks. It was announced in Brussels that the talks would continue through Sunday, and some uncertainty concerning the final situation around the trade deal remained in the market. On Monday, 14th December, Boris Johnson and Ursula von der Leyen jointly stated that they had discussed the key unresolved issues and decided ‘to go the extra mile’ to reach a historic trade deal. The market’s reaction was extremely bullish , with the GBP/USD opening with an upside slippage of 127 pips and reaching 1.3380 in the first eight hours of Monday, virtually writing off the previous week’s losses.
The U.S. and U.K. economic reports during the week of 14th December will be many. The most important one will include: the U.K. unemployment data and average earnings for November on Tuesday; the U.K. CPI , the U.K Services PMI and Manufacturing PMI, the U.S. retail sales, the U.S. Manufacturing PMI, the U.S. Services PMI, the U.S. PMI Composite on Wednesday; the Bank of England’s interest rate decision on Friday. Also, a COVID-19 vaccine announcement is scheduled to be made in the U.S. on Friday, 17th December.
Presently, the 1.3143 daily support level remains the downside target for GBP/USD , its attainment may be foiled by the upside channel’s lower boundary, which has already several times prevented cable from slipping outside the channel. However, if pessimism continues to dominate the Brexit trade deal arena, the discontinuation of the uptrend in the pair only seems to be a matter of the nearest future.

EUR/GBP

For GBP/EUR, the week of 7th December was a straightforward bear run, from mid-1.1000s to 1.0850. The failure to yield a breakthrough at the dinner in Brussels damaged the pound’s positions against the rivals, most noticeably - against the euro .

Having opened the week of 7th December at 1.1063, GBP/EUR travelled below 1.0950 in the early Monday’s hours, but recovered most of the losses during the rest of the day, closing Monday’s session at 1.1050. On 8th December, Tuesday, Monday’s trading situation largely replicated itself at a lesser scale. Having opened the session at 1.1045, GBP/EUR edged down to 1.0969 but returned to 1.1034 at the day’s close. Tuesday’s mixed trading was partly explained by EU’s GDP data: a negative 12.5% change against the 12.6% market forecast and the positive -4.3% year-over-year change against the -4.4% market forecast.

On Wednesday, 9th December all eyes were fixed on Brussels, where the talks between British PM Boris Johnson and European Commission President Ursula von der Leyen were taking place. As was announced after the end of the talks that both sides remained ‘far apart’, GBP/EUR got stuck under the 1.1100, being pressured by the 1.1093 weekly level and the 50-day simple moving average . The market’s reaction on Thursday, 10th December, was highly negative: a long bearish candlestick took the pair from 1.1089 to 1.0948 at the day’s close. On Friday, 11th December, the pair opened at 1.0954 and, pressured by the British PM Johnson’s rhetoric of a high chance of a no-deal Brexit, touched the low of 1.0835 in an 8-hour-long downswing between 6:00 and 14:00 UTC . A bounce from the weekly low took the pair above 1.0900 and saw it close the week at 1.0913.

The week’s dynamics indicated a downside target of 1.0795 for GBP/EUR, but the bullish comments from the negotiators in Brussels have changed it for an upside one at 1.1250. The announcement of a new round of negotiations made by PM Boris Johnson and European Commission President Ursula von der Leyen with determination to resolve the key issues and reach a trade deal sent the pair above 1.1030 and the 50-period SMA on the 4-hour timeframe by 08:10 UTC .

Besides the situation developing around Brexit trade deal negotiations, the week of 14th December is rather tightly packed with economic reports. Aside from the British ones, the key EU reports to watch for GBP/EUR include: Manufacturing PMI, Services PMI and PMI Composite on Wednesday and CPI on Thursday.

The renewed hopes of a trade deal between the EU and the U.K. have given the GBP/EUR a bullish stimulus. Therefore, a deal in place could easily send the pair above the 1.1250 resistance level . The announced new round of negotiations should soon give final clarity for GBP/EUR trading dynamics.

Comments

Very nice analysis. Great read - thank you
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Big day for GU. Brexit deals & tier 3. Nice analysis
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