Michel Barnier lifts the British pound with his comments that a Brexit deal could be reached in the next 6 to 8 weeks. In regard to other UK news, today, the focus will be on the average earnings and unemployment. Also, trade wars take a pause, as negotiations continue.
The British pound got a big boost yesterday from the EU’s chief negotiator Michel Barnier, who said that a Brexit deal could be reached in 6 to 8 weeks. It will be the middle of November when a deal could get signed off. In other words, Britain could avoid a no-deal Brexit that everyone was talking about in the past few weeks.
The EU is aware of the difficulties that Prime Minister Theresa May is facing back in UK from the Tory party, so the bloc is trying to help smooth the process as much as they can. This, of course, was picked up by the market and investors started moving into GBP.
UK will be releasing its unemployment and earnings figures during the European morning. The projection for the jobless rate is to have remained the same at 4.0% as previously. Average earnings including bonuses are expected to have remained as the previous ones, at +2.4%, whereas the earnings excluding bonuses are anticipated to come out slightly higher at +2.8%, when compared to the previous +2.7%.
GBP/USD finally managed to break and close above the downwards moving channel, that the pair was trading in since around the beginning of May. If this will get a follow through and GBP/USD closes above the 1.3045 barrier, this could mean that the bulls are back in the game and this could be a positive for the pair’s near-term outlook.
GBP/USD, at the time of this analysis, is testing the key 1.3045 resistance level, marked by the high of the 30th of August. A strong move above that level could set the stage for a test of the next important resistance at 1.3125, marked by the high of the 2nd of August. If that area is not able to withhold the rate from accelerating further, the bulls could see this as a good opportunity to jump in and drive the pair higher, towards the 1.3215 zone, which was the peak of the 26th of August.
For us to start looking at the downside, we would need to see GBP/USD retreating back into the falling channel that it broke out of yesterday. A good move below the upper bound of the channel and the 1.2985 zone could set the stage again for lower levels that were tested a few days back. The next potential area of resistance to watch could be between the 1.2895 and 1.2870 levels. Further declines could interest more bears and lead to a drop towards the 1.2785 area, marked by the low of the 5th of September.
Yesterday, the global stock market rose, managing to recover at least some of its lost grounds. The main drivers for that was the appearance of optimism for the Italian policy and that US is currently on hold with the China tariffs.
On Monday, the EU trade chief Cecilia Malmstrom met with her US counterpart Robert Lighthizer for the first time since Trump announced that he is planning to impose tariffs on imported EU cars. This meeting has been seen as an addition to the initial talks that Trump and Jean-Claude Juncker had around two months ago.
Lighthizer and his office have described the meeting as constructive. The plan now is to meet again in October for further negotiations.
Last month, Malmstrom said that there are still a lot of disagreements between the two sides. One of the proposals was to reduce the tariffs on imported US cars, if the US would be willing to do the same from their side on imported EU cars. Trump rejected this idea, as he believes that EU consumers would still choose EU cars instead of US ones.
Since around the end of August, EUR/JPY was trading within a falling wedge formation, which got broken this morning. This could be a good indication that the pair is positioning itself for a possible move back up towards the beginning of September and end of August highs.
As EUR/JPY is pushing higher, the next potential area of resistance to keep an eye on is the psychological 130.00 zone, marked near the high of the 5th of September. A break and a close above that zone could interest more bulls to participate in the process of lifting the pair higher, to the next good resistance at 130.25, a break of which, could set the stage for a possible move towards the 130.85 barrier, which held the rate from moving higher on the 30th of August.
Alternatively, if EUR/JPY moves back down below the upper side of the aforementioned wedge formation and also closes below the 129.10 hurdle, this could be seen as a sign of weakness. This could get quickly picked up by the bears who could drive the pair back down again. The first good area of support to keep an eye on could be the 128.75 level, marked near this morning’s low. A further drop could lead to a test of 128.35, or even the lower side of the wedge. The area there could be near the 127.85 obstacle, which was the low seen on the 10th of September.
Germany is set to release its ZEW economic conditions and sentiment figures during the European morning. The expectation is for the economic conditions to have slowed down a little, from the previous 72.6 to 72.0. The number shows how different analysts from banks, insurance companies and some other institutions view the economic growth for the next 6 months.
Also, US JOLTs job opening figure is set to come out. The expectation is for the number to have slightly gone down from 6.662M to 6.646M. If that's true, this could have a small affect on the USD, as we don't expect it to be major market driven news.
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