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Weekly Digest - A crunch week for Brexit talks

Monday, October 14, 2019 1:20 PM GMT

GBP/USD has traded in a range of approximately 700 pips over recent weeks, from 1.2000 to 1.2700, as the issue of Brexit has continued to dominate Forex markets. The extreme movements witnessed as the major pair has whipsawed in a wide range, have offered up tremendous, profitable, trading opportunities. And during the current week, as critical decisions are made by the U.K. Parliament, volatility in sterling pairs’ is likely to remain high. FX brokers have experienced a surge in betting on the direction of the U.K. pound versus its peers, as the clock counts down to the October 31st Brexit deadline and the sentiment and activity of ZuluTrade’s Investors and Traders towards GBP can always be established by analysing the TradeWall  

The Social Charts section of the ZuluTrade website also provides an excellent insight into the trading decisions made by many of the ZuluTrade Traders in the community, many of whom our Investors rank highly, based on their accurate analysis and consistent performance. If you haven’t considered contributing or becoming involved in the Social Charts section, then perhaps now is the time. This interactive and inclusive feature is an excellent section on our site, in which you can discuss trading ideas with your peers. 

As currency pairs such as GBP/USD and EUR/GPB traded in wide ranges during the past week as a consequence of Brexit developments, the opportunities to profit from these moves became highly prominent. The ZuluTrade Traders who specialise in trading sterling pairs can always be observed on the Traders section. 

As evidenced by the following two charts, ZuluTrade Traders and Investors don’t have to be in the market at the epicentre of price-action, the moves in both EUR/GBP and GBP/USD currency pairs provided excellent opportunities to profit throughout several, consecutive, sessions as optimism rose, due to the potential for a withdrawal agreement being passed through Parliament on Saturday October 19th. In truth nothing tangible has been agreed by both parties, a cordial meeting between the U.K. and Irish prime minister and the subsequent positive narrative, was responsible for the spike in the value of sterling versus its peers. A no deal Brexit has always been unlikely, based on the Benn Act of Parliament passed in September.

The likelihood of a significant retraction in sterling values can’t be ruled out this week. FX markets should always be considered reactive and not predictive. If optimism regarding Brexit fades this week, particularly once the E.U. meet in Brussels from October 17th-18th to discuss any revised proposition from the U.K., then the rises witnessed over recent sessions by sterling could quickly adjust and evaporate. It’s worth noting that U.K. Parliament will sit on Saturday for the first time in many decades, consequently, the opening of trading on Sunday evening October 20th, could prove to be extremely volatile, depending on a variety of outcomes. 

Trade Economic News at ZuluTrade

As previously referenced; the bullish momentum for sterling was maintained throughout Thursday’s and Friday’s trading sessions. The Traders and Investors in our ZuluTrade community who remained steadfastly long GBP/USD, will have enjoyed considerable pip gains. As is clearly illustrated on this 4hr timeframe, remaining long over the two-day period as news broke regarding the detente and as Brexit optimism continued, proved to be the right decision. GBP/USD rose by 1.80% during Friday’s sessions and closed up 2.55% weekly, as the major pair experienced the largest two-day gain since before the June 2016 referendum.

Many analysts believe the sterling rise was excessive and several key technical indicators suggest certain GBP pairs are overbought, any adjustment or regression to the mean values will also offer up tremendous trading opportunities for both Traders and Investors. If we analyse the 4hr timeframe, a TF favoured by many day and swing traders because it chimes with the opening of the various global trading sessions, we can clearly see that the stochastics are generating overbought signals, as the RSI is operating close to the 80 level.

Brexit developments overshadowed any U.K. economic calendar events during the past week, despite manufacturing, industry, construction and services data from both Markit and the U.K. ONS suggesting the U.K. is flirting with recession, which was evidenced by the latest monthly GDP growth figure coming in at -0.1%. But FX traders ignored the underlying data in preference to bets on a successful Brexit. This week that pattern is likely to continue. However, all members of our community should ensure they’re tuned into upcoming events, our proprietary, interactive, economic calendar  provides you with the ideal opportunity to personalise events to the currency pairs you trade and watch. You can also subscribe to or visit other free resources, such as Trading Economics which delivers a wealth of data at your fingertips. 

On Tuesday October 15th the Bank of England Governor Mark Carney appears before a Parliamentary committee. Over the weekend Mr. Carney provided one of the most high profile climate-change warnings and significant departures from the establishment consensus. In the Guardian newspaper he suggested that corporations who don’t adjust to, or who continue to deny climate change and its economic impact, will become bankrupt.  

A slew of employment, unemployment and wage data is published by the U.K. ONS this week. On October 16th the latest CPI figures are forecast to show a rise to 1.8% from 1.7% for annual inflation. On October 18th the Fitch ratings’ agency will broadcast their opinion regarding the sovereign debt of the U.K. 

USA equity indices rose sharply during the past week’s trading sessions as investors brushed aside any potential impeachment action on President Trump, the main indices are now close to reaching the record highs printed earlier in the year. The NASDAQ 100 tech index closed the week up 1.16%, due to sentiment improving regarding a potential breakthrough in China-USA trade relations, meanwhile, corporate earnings have also added fuel to the risk-on appetite. The overall performance of the Chinese economy will be highlighted by the latest Chinese GDP figures, which Reuters forecast will show a slight fall, when a series of data is published during the Asian session on October 18th. Annual growth is predicted to have slowed to 6.1% YoY, with Q3 falling to 1.5%. 

Trade Economic News at ZuluTrade

Whilst action may be taken by the Democrats versus Trump, any intended impeachment is likely to be blocked by the Republicans. However, there is a potential agenda which is overlooked by many analysts; any impeachment threat may offer up a perfect excuse and opportunity to remove Trump as the Republican candidate in the 2020 election, he doesn’t have an automatic right to be their preferred choice. The Republicans could remove him using their own procedures, rather than face such a toxic and divisive figure leading them into a Presidential election. A respected political publication in the USA, The Hill, keeps track of Trump’s disapproval rating, Therefore, impeachment rumours shouldn’t necessarily be considered bearish for markets as based on the President’s current ratings, the markets are sanguine regarding the possibility. 

Whilst USD fell sharply during the past week versus EUR, GPB and several other peers, the dollar racked up gains versus JPY. USD/JPY rose by 1.37% weekly, the slump in USD was best illustrated by the dollar index, DXY,  which slipped by -0.51% during the week. Despite the fall the DXY, which measures the value of USD against its main peers, is up 3.12% yearly, mainly due to U.S. interest rate policy being out of step with other global central banks.  

This week the economic calendar for the USA mainly focuses on continuous corporate earnings, the monthly budget statement published on October 15th and advanced retail sales data published on Wednesday 16th. On the 17th various house construction data for the USA is revealed, both permits and housing starts are predicted to show a dramatic slump for the month of September; permits down -5.8% MoM and starts down -3.2%. Industrial and manufacturing data is also predicted to print negative figures for September, of -0.2% and -0.3% respectively. 

Such a monthly slump in critical data can’t be simply dismissed as seasonal factors, therefore, doubts could be flagged up regarding the overall systemic health of the USA economy, concerns that have drawn comparisons with the 2009 recession. These fears will no doubt be discussed this week at the International Monetary Fund’s annual meeting in Washington. Bloomberg Economics’ global GDP tracker shows the pace of expansion has slowed to 2.2% in the third quarter, down from 4.7% at the start of 2018 . However, despite the recessionary fears, certain economists quoted on Reuters suggest there’s a ready-made solution in the locker to avoid a slowdown; simply increase fiscal stimulus/debt . 

Similar to the U.K. situation, the Eurozone economic calendar could be overshadowed by Brexit developments and negotiations this week. As previously mentioned; the council meeting in Brussels during October 17th-18th will reveal if the E.U. have been prepared to adjust any of the four free movement principles to cater to U.K. demands. On October 15th, the latest October ZEW readings for the Eurozone and Germany will be published, the datasets are predicted to reveal a further deterioration of sentiment. On October 16th at 10:00am U.K. time, the latest CPI figures for the Eurozone will be broadcast, the expectation is for a fall to 0.9% from 1.0% YoY up to September, a result which (if met) could impact on the value of the euro across the board. 

Disclaimer

The views expressed do not constitute investment or any other advice /recommendation /suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in the report do not represent the opinion of ZuluTrade Social Trading Platform and do not constitute an offer or invitation to anyone to invest or trade.

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