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Andreas Zanin
Analysis | December 8, 2020

KTM FX Weekly: Drama begins so do volatility

The UK financial assets were witnessed wild swings on Monday, as final Brexit talks are underway. Growing fears of a no-deal Brexit were a major concern overnight.

Brexit is back in the headlines, with less optimism on the trade deal. EU chief negotiator Barnier told European ambassadors that negotiations were still stuck on the longstanding issues of fishing rights, dispute resolution, and so-called ‘level playing field’ conditions. Barnier reportedly said he “cannot guarantee” a deal, and it was up to the UK to make the next move. UK PM Johnson and European Commission President von der Leyen are supposed to be speaking now in what has been described as a “make or break” conversation to see whether a deal can be reached. We should expect headlines soon.

  • Paul Donovan at UBS said, “The interminably tedious EU-UK divorce is still tedious and interminable. Politicians are feverishly searching for ever more sensationalist adjectives to tell the world how important they are and how uncertain everything is. The Irish Taoiseach’s “knife-edge” will doubtless be beaten in the coming days. This is still not the last possible moment, so this will still drag on.”
  • Westpac Analysts said, “In the late UK afternoon, PM Johnson was reportedly prepared to drop contentious articles (those that would break International Law in relation to the Withdrawal Agreement Act) from UK’s Internal Markets Bill if a suitable trade deal with EU could be agreed upon, however, the scheduled call between UK PM Boris Johnson and EC President von der Leyen produced little. Their joint statement confirmed that “conditions for finalizing an agreement are not there due to the remaining significant differences on three critical issues: level playing field, governance, and fisheries.”

 Macros: That’s all for the Brexit headlines, and we move forward to the UK macros. Last week’s Manufacturing and Services PMI showed the growth continues to accelerate in November compared to October. As per the official release, the upturn in the UK manufacturing economy strengthened during November, as rates of growth in output and new business accelerated, and the downturn in employment slowed.

The latest data suggest, Manufacturing production increased again in November. Although the rate of expansion was both solid and above that registered in the prior survey month, it was also weaker than those seen through the third quarter of the year.

  • UK Manufacturing PMI at 55.6 in November (Flash: 55.2).

  • UK Services PMI dropped to 47.6 in November, from 51.4 in October.

Looking ahead, we will get GDP for the Eurozone and UK. So far, the latest UK’s economic points are suggesting the economy is being slightly recovered from COVID lows. We expect the monthly GDP data will fail to produce any bullish GBP moves as all eyes on the EU summit this Thursday and Friday.

 TECHNICAL OVERVIEW

Overnight GBP dance on the Brexit floor failed to breach the first resistance at 0.9150. Before rallying higher, the four-hour chart was presenting an inverse H&S pattern, and the price breakout higher through the neckline overnight but failed to close above. Support exists at 0.8980, and 0.8940 below here focus shifts to 0.8860. So, the view is not bullish irrespective of the bullish pattern.

Coming to the daily chart, with failing to break the resistance zone of 0.9150-0.9180, we raise a cautious tone for bulls. Further resistance to pass through 0.9180 could raise the alarm as the pattern would evolve as an H&S on the daily chart with the neckline at 0.8860. overall, a little less bullish to neutral.

But Some technical are starting to appear near term bullish. The daily RSI and the oscillator are propelling higher, so do the weekly and monthly oscillator. With a bearish price pattern and bullish indicators, we remain neutral this week again and will watch the trend closely.

From a trading perspective, a daily close above 0.9100 needed to rally towards 0.9150-0.9180. If you are bullish GBP, then use stop loss above 0.9200 and sell on rallies.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

What is your Technical View?

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