GBP strengthens on reports of possible Brexit agreement

The pound strengthened yesterday against the USD and to a lesser extend against the EUR and JPY as hopes for a Brexit deal increased. A Bloomberg article reported that Brexit negotiations, zero in on a possible deal, which could be feasible as soon as next week. Also, local media reported that Britain’s chief Brexit negotiator, David Frost told UK’s PM Johnson to expect a Brussels trade deal “early next week”. At the same time Brexit still remains a possibly highly business disruptive event, especially for trade, with possible adverse effects on the UK economic outlook. We maintain our base scenario that a deal will be reached, even a partial one by the end of the year, yet the situation remains uncertain and the stakes are high. We expect Brexit to continue to be a key issue for the pound’s direction, and any headlines confirming that the two sides are nearing a deal could support the pound and vice versa, while GBP traders may also be keeping an eye out for UK’s inflation rates for October due out today.
GBP/USD continued to rise breaking clearly the 1.3210 (S1) resistance line, now turned to support. We maintain a bullish outlook for the pair, as long as it remains above the upward trendline incepted since the 13th of November. Should the bulls continue to guide the pair, we could see GBP/USD and breaking the 1.3285 (R1) resistance line aiming for the 1.3375 (R2) resistance level. Should the bears take over, we could see the pair breaking the prementioned upward trendline, the 1.3210 (S1) support line and start aiming for the 1.3150 (S2) support level.

JPY continues to strengthen on coronavirus worries

JPY continued to rise against the USD, enjoying safe haven inflows against the EUR as well as worries about the rising coronavirus cases tended to intensify. It should be noted that market worries for the resurgence of the pandemic seem to have started to temper hopes for a vaccine, which provided some support for riskier assets in the past few days. Analysts still stress that even despite having a vaccine, some months are still needed for distribution and to actually improve the situation. On the economic front, it’s characteristic that Fed Chair Powell yesterday stated that that there was still “a long way to go” to recovery, while ECB President Lagarde stated that a vaccine does not alter the gloomy projections for the economy in the next few months. Should market sentiment continue to be on the cautious side due to increased market worries, we could see JPY gaining further ground and vice versa.
USD/JPY continued to slide and currently seems to be testing the 104.10 (R1) level. We maintain a bearish outlook for the pair as long as it remains under the spell of the downward trendline incepted since the 11th of November. Also please note that the RSI indicator below our 4-hour chart, is approaching the reading of 30, confirming the presence of the bears on the one hand, yet may also imply that the pair is approaching oversold levels. Should the selling interest of the market for the pair continue, we could see the pair distancing its price action from the 104.10 (R1) resistance line and aim for the 103.10 (S1) support level. Should the pair find fresh buying orders along its path, we could see it breaking the prementioned downward trendline, 104.10 (R1) resistance line and aim for the 105.30 (R1) resistance hurdle.

Other economic highlights today and early tomorrow

Today in the European session, we get UK’s inflation rates for October, as well as Eurozone’s final HICP rate for October. In the American session we get the US housing data for October as well as Canada’s inflation rates also for October and the US EIA weekly crude oil inventories figure. During tomorrow’s Asian session, we highlight Australia’s employment data for October. As for speakers please note that BoE’s Haldane, BoC Deputy Governor Wilkins, Chicago Fed President Evans, BoE Governor Bailey, NY Fed President Williams, St. Luis Fed President Bullard, Dallas fed President Kaplan.