GBP/USD Daily Forecast – Sterling Holds Near Highs Awaiting Further Brexit News

Brexit Talks Resume in Brussels

EU’s chief negotiator Michael Barnier wanted a legal text of a potential deal delivered by Tuesday but after negotiating until 1:30 AM yesterday, an agreement could not be made. Talks resume today, taking it right down to the wire as negotiations are not meant to take place during the EU summit which starts tomorrow.

I suspect GBP/USD will extend gains if we get word later in the day that a legal text was finalized. However, UK Prime Minister Johnson still has his work cut out for him.

If he’s able to come to an agreement with EU negotiators today, the deal will still need to be approved by the member states at the EU summit which takes place on Thursday and Friday.

But more importantly, the UK parliament needs to vote on the deal. Since Johnson has lost his majority, it’s unclear if all his efforts will be fruitful since parliament could turn it down.

If a deal is not reached, Johnson will be required to request an extension under the recently passed Benn act. This could get tricky as the British PM has said several times that the UK will leave on October 31 no matter what. But when pressed for an answer, he has also said that he will abide by the law.

Technical Analysis

GBP/USD is up about 4% since Johnson announced last week that he found a pathway to a potential deal. Although technical indicators are in oversold territory at this point, I think the exchange rate can continue to move higher if there is further positive news.

GBPUSD 4-Hour Chart

The next level I have my eye on is 1.2924. This level was respected on a weekly chart after the referendum that took place over three years ago.

Price action is likely to be volatile and therefore I’m looking at support at 1.2575. Normally, that level would fall well out of the daily range for the pair. However, considering what is at stake, I’m not ruling out a dip towards it.

Bottom Line

  • An announcement might come that a deal has been agreed on with negotiators later today.
  • The legal text of these negotiations would then be put forth to a vote at the EU summit.
  • If approved at the EU summit, it will go to the UK parliament. In a rare move, parliament will convene on Saturday to decide on the next step.

EUR/USD Daily Forecast – Euro Continues to Battle 50-Day Moving Average

Brexit Talks Stand to Drive Volatility to EUR/USD

Price action in the FX markets on Tuesday provided a glimpse of which currencies are likely to see a reaction based on how things progress with reaching a Brexit deal.

Since last week, the British pound has been firmly bid and was last seen trading near highs not seen since June against the dollar. But yesterday’s surge higher in GBP/USD accompanied a bullish reaction in EUR/USD which we’ve not seen before.

EUR/USD had declined below the 1.1000 handle and then rallied nearly 50 pips in 30 minutes on Brexit news. This suggests if Brexit talks are favorable, EUR/USD is likely to continue its recent upward trend.

So far the 50-day moving average has been holding the pair lower on a daily close basis. But the indicator is not likely to be much of a hurdle on positive Brexit news. We are likely to get some market-moving news later today as Brexit negotiations will stop before the EU summit which starts tomorrow.

EUR/USD Little Changed After CPI Data

The consumer price index in the Euro zone was reported to rise at the slowest pace in nearly three years. Meanwhile, core CPI, which strips away volatile items such as food, energy, alcohol, and tobacco, remained unchanged at 1% in the year to September. The exchange rate had a muted reaction to the report.

Technical Analysis

Two items have been capping rallies in EUR/USD. A horizontal level at 1.1059 and the 50-day moving average.

EURUSD Daily Chart

If we get some further positive Brexit news, I’d expect this area to be breached, putting in focus resistance at 1.1129. This is a level that was major support April and in May.

In the absence of news, I expect that sellers will try and drive the pair lower once again. Although we may see buyers step in ahead of yesterdays low just below 1.1000, this continues to be an important area for the pair.

Bottom Line

  • Headlines related to Brexit stand to move EUR/USD and today could be a volatile day for the pair.
  • Euro zone CPI data fell short of expectations but did not have an impact on the exchange rate.

GBP/USD Daily Forecast – Sterling Little Moved After UK Jobs Report

Sterling Volatility Could Jump Higher Ahead of EU Summit

It is an important week for the United Kingdom as a potential deal could be announced as soon as today, that will facilitate an orderly exit from the EU.

Negotiations between the EU and UK will end ahead of the EU summit that takes place on Thursday and Friday. For that reason, if a deal is to be made, it should be announced relatively soon.

On the other hand, if the two parties are not able to reach a deal, the most likely scenario is that the UK will ask for an extension. This would accompany an election and all sorts of uncertainty.

For this reason, the Sterling exchange rate is likely to be very volatile over the next two sessions. Traders will be closely watching their news feeds for any incoming data and repricing the exchange rate accordingly.

Technical Analysis

The markets started pricing in a premium for a no-deal exit even before Boris Johnson was elected as Prime Minister. At this point, it looks like there is a bit of an unwinding of this position following news last week that the UK is moving closer towards a deal.

In this context, I expect the British pound will be well bid in the absence of news. To be clear, there have been negative headlines since the start of the week, but I am speculating it will take something concrete that suggests a deal won’t be reached to trigger a reversal in the Sterling rally.

GBPUSD 4-Hour Chart

From a technical perspective, the pair broke to a 3-month high on Friday and carries a bullish near-term bias. Last week, the pair was held lower by the 1.2700 level. I see some further resistance at 1.2738.

The pair certainly looks strong and any indication that Brexit talks are going smoothly might just offer the markets a reason to bid it up further. I see some potential for the pair to extend gains towards resistance at 1.2924.

In yesterday’s forecast, I was looking at a horizontal level at 1.2575 to the downside. The level had already been breached but buyers lifted the pair back above in the New York session and the pair regained strength. I’m still looking at this same level for downside support.

Bottom Line

  • GBP/USD is well bid as investors view the odds of a no-deal scenario lessening.
  • Sterling is likely to see a jump in volatility as there are just two days left for negotiating a deal.
  • A break above 1.2738 could see the pair rally all the way to 1.2924.

EUR/USD Daily Forecast – Euro Consolidates Below 50 DMA

EUR/USD Rally Stalls

Last week EUR/USD rallied above an important technical resistance confluence that I’ve talked about in my last few daily forecasts. At this point, it will be important to asses whether the breakout is real, or just a trap for buyers.

One important aspect is assessing technical developments is the longer-term trend. For EUR/USD this is certainly to the downside even though price action has been choppy for the past year or so.

For that reason, additional confirmation would provide further conviction that the pair has indeed put in a bottom, or at least, a near-term one.

Currently, resistance from a horizontal level at 1.1059 has been holding the upside and daily closes have been held by the 50-day moving average. I suspect this will continue to be major resistance over the near-term.

A bit of a support confluence is developing in around 1.1000 as the 200 and 50 moving averages on a 4-hour chart have converged toward the level. Further, a rising trendline from October lows and the 20-day moving averages are also nearby. If the pair were to break below this area, I would assume that last week’s upside break was a bull trap.

Daily Technical Outlook

With a relatively light economic calendar in the session ahead, I suspect that the pair will continue to trade within the roughly 1.1000-1.1050 range.

EURUSD Daily Chart

There was some selling pressure around the European open and this might keep the pair well offered, at least until the North American session gets underway. In this context, I see important resistance at 1.1033.

EUR/USD briefly traded below yesterday’s low in early trading, likely taking stops from weak hands. If the pair remains under pressure, I think it will try and trigger further stops below Friday’s low of 1.1001. However, the psychological 1.1000 handle is likely to draw buyers. I see it as major support for the session ahead.

EURUSD 4-Hour Chart

On the other hand, if we reverse sentiment a bit and start to get bullish, I’m looking at 1.1059 to continue capping gains in the near-term.

Bottom Line

  • EUR/USD has been ranging with the 50-day moving averages holding the pair on a daily close basis.
  • I suspect the pair will continue holding in this range considering the light economic calendar.
  • Strong selling pressure at the European open suggests a slight bearish bias for the session ahead.

GBP/USD Daily Forecast – Sterling Edges Lower After Sharp Surge

Sterling is Poised for a Volatile Week

GBP/USD broke to a 3-month high last week as investors saw the odds of a no-deal Brexit declining. The shift in investor sentiment came after a joint statement from UK PM Johnson and Irish Prime Minister Leo Varadkar who said they saw a “pathway for a potential deal”.

News over the weekend sours the optimism a bit as EU and UK officials have both said that there is still quite a way to go to secure a deal. With time running down, the Sterling pairs are poised to have a volatile couple of days.

The UK is scheduled to leave the EU on October 31, even if a deal is not secured. Currently, it looks like they will request an extension rather than leave without a deal.

Negotiations End Wednesday

But more important than the October 31 deadline, a deal should be agreed on at the EU summit which starts on Thursday. That means negotiations should be completed by Wednesday so that a decision can be made during the summit. UK parliament then holds a rare Saturday meeting to decide what to do next.

In this context, there are only three days left, including today, for an orderly exit. If a deal is not made, it will introduce all sorts of uncertainties. It is still unclear why PM Johnson insists the UK will leave without a deal even though he legally has to ask for an extension if he is unable to secure a deal. The only way around this point is if he can convince parliament to go along with his plan which seems unlikely.

Further, the UK is likely to have an election if a deal is not made, in an attempt to break the impasse. Also, even though the law states a three-month extension will be asked for, this can easily change to a longer or shorter time frame. It is important to note that EU officials will need to unanimously agree to the extension.

The British pound will be sensitive to ongoing headlines over the next few days. The Queen’s speech takes place today. However, it is not expected that any major announcements will be made that will cause drastic shifts in GBP/USD.

Technical Analysis

The rally in GBP/USD on Friday was capped by the 1.2700 handle and the pair has been moving lower since. There seems to be a general lack of buying as the decline has been persistent although it is lacking momentum.

GBPUSD 4-Hour Chart

Support for the pair at 1.2575 has broken but how the pair trades around this level will be important for the session ahead. I suspect a push back above it could lead to another attempt to scale above 1.2700.

If the level fails to hold, the next area of support I am watching falls at 1.2486. Generally speaking, I think the pair will remain bid considering there was a premium priced in for a no-deal scenario. While that is not off the table, it certainly does not seem wise to position for it at this time.

Bottom Line

  • Volatility is likely to increase even more as the clock winds down for Brexit negotiations.
  • Negotiations will complete on Wednesday, ahead of the EU summit.

EUR/USD Daily Forecast – Euro Holds Gains Above 1.10

EUR/USD Price Action Signals Reversal Potential

After grinding lower in a downtrend since early 2018, EUR/USD is showing signs of making a bottom, or at least an interim one. The pair broke higher from a major confluence of resistance last week as the dollar fell under pressure.

The pair might have a slow start to the week as some of the US markets are closed today in observance of Columbus Day. This could trigger unusual volatility in the session ahead. Volatility is likely to pick up on Thursday as inflation data will be released from the Euro area and retail sales figures from the US.

The exchange rate has not had much of an impact on news late last week that China and the US have reached a partial trade deal. The news has brought the return of risk appetite with equity markets rallying around the world. A notable advance was seen in the German DAX on Friday as it rallied to fresh two-month highs and broke above a declining trend line which originates from the July peak.

Technical Analysis

EUR/USD rallied for a second consecutive week and broke above an area of resistance that includes three important technical indicators. First is the 1.1000 psychological handle which has generally been respected as of late. Second is a declining trend channel which has contained price action since late June.

EURUSD Daily Chart

Lastly, the pair has broken above its 20-day moving average. This particular indicator has been crossed a few times since August. However, none of the prior attempts resulted in a sustained break. In this context, the indicator is an important area to watch in assessing bearish reversal potential. The moving average currently resides at 1.0983.

The rally on Friday was blocked by horizontal resistance at 1.1059. This level  remains a hurdle in the near-term. The 50-day moving average is near the level to create a bit of a confluence.

EURUSD 4-Hour Chart

Support for the session ahead comes in around 1.1010 as a rising trend line is in play. This trend line originates from the low printed at the start of the month.

Bottom Line

  • EUR/USD might fall into a range in the session ahead with some markets closed in observance of Columbus Day.
  • Resistance at 1.1059 remains a major hurdle in the near-term.
  • Volatility is likely to pick up later in the week as Euro CPI and US retail sales will be reported on Thursday.

GBP/USD Daily Forecast – Sterling Surges on Brexit Deal Optimism

Sterling Jumps on Hopes of a Possible Deal

Investor sentiment towards Brexit reversed sharply on Thursday after news that the UK is progressing towards a deal.

Prime Minister Boris Johnson seems to have finally gotten a win after being dealt a series of defeats. Johnson managed to reach a comprise with Irish Prime Minister Leo Varadkar that aims to get past the impasse regarding the Irish backstop.

The so-called backstop has been the main obstacle in reaching a deal. In a joint statement, Johnson and Varadkar announced that they could see a “pathway to a potential deal”, signaling that they have found a way around the issue.

Negotiators met for breakfast earlier today to discuss the revised proposal and things can potentially move fast from this point. GBP/USD is likely to remain volatile over the near-term as investors gain clarity on how Brexit will potentially unfold.

Technical Analysis

Investors have considered the potential of a no-deal Brexit long before Johnson was elected and have been pricing it in the potential of such a scenario. For that reason, the British pound stands to recover higher on further confirmation that the UK will leave the EU in an orderly fashion by the October 31 deadline.

GBPUSD 4-Hour Chart

We could see GBP/USD pare some gains in the absence of further developments although the pair has made a significant technical break. Specifically, the exchange rate has scaled above the 20-week and 100-day moving averages. These moving averages had held the pair lower in September to trigger a roughly 3% correction.

Further, the correction from September highs took the form of a bullish flag and yesterday’s bullish break also signals more upside.

The next level of interest to the upside falls at 1.2575. This level acted as both support and resistance during the summer. Beyond that, I think this rally could even extend further towards the 1.2700 area.

Bottom Line

  • Sterling is rallying as the markets see the odds of a no-deal Brexit declining significantly.
  • Upward momentum is strong and a catalyst is in place for a move to resistance at 1.2575. Beyond that, I see potentially for the rally to extend to 1.2700.

EUR/USD Daily Forecast – Euro Rally Slows Following Break Above 1.10

EUR/USD Retests Breakout Point

There was a fairly significant technical break in EUR/USD yesterday as the pair broke above an important resistance confluence. Momentum has faded a bit since then, although the pair continues to offer a bullish signal while above this area.

A positive development in the US-China trade war on Thursday triggered a rally in risk although it did not have a very significant impact on the dollar. The US dollar index (DXY) fell to a two-week low yesterday and has since fallen into a narrow range. Meanwhile, the S&P 500 gained 1% on Thursday and is seeing a strong bid in pre-market trading today.

Investor optimism was lifted after comments from US President Trump indicated that the world’s two largest economies were moving closer to a deal. Talks will resume today and we could see further volatility in the markets. The economic calendar is quite light today so the markets will tend to be entirely focused on the trade war.

Technical Analysis

Yesterday’s bullish break was quite significant as several technical barriers were breached. First, the 1.1000 level itself is quite important considering its psychological properties. Further, the 20-day moving average falls near the level to create a confluence. Lastly, the upper bound of a trend channel is also within close proximity of the horizontal level and moving average. The channel had held EUR/USD lower since late June.

EURUSD 4-Hour Chart

The pair topped around 1.1030 yesterday and has since declined to retest the breakout area that buyers have been defending. If we manage to get back below it, especially on a daily close basis, it would negate the breakout.

On the other hand, EUR/USD could be signaling a bullish reversal considering yesterday’s technical development. For this reason, how the pair trades today, and closes for the week, will be important for the near to medium-term outlook.

Bottom Line

  • After the bullish break yesterday, EUR/USD bulls are defending the breakout area on a dip.
  • Trade negotiations will continue and news on developments stand to drive volatility to the pair.

GBP/USD Daily Forecast – Sterling Catches a Bid on a Weaker Dollar

The GBP/USD Recovery Might be Misleading

GBP/USD has been underpinned by a weaker dollar and appears to be attempting to carve out a bit of a bottom. However, my take on the matter is that this price action shouldn’t be taken too seriously.

The pair is catching a bit of a bid as a result of a weaker dollar. But more importantly, Brexit related headlines have slowed a bit. This has allowed the pair to be dominated by dollar fluctuations, although realistically, how things play out with Brexit will ultimately drive the pair.

The focus is on the EU summit which takes place late next week. The UK is meant to agree to a deal by then to leave in an orderly fashion by the October 31 deadline.

So far, the plan put forth by UK Prime Minister Boris Johnson has been criticized by several EU officials. So where does that leave us?

I’m speculating that Johnson will revise his plan and make another attempt ahead of the EU summit. But if he doesn’t, there won’t be any real clarity on Brexit until the EU summit next week. In the meantime, fluctuations in GBP/USD can be misleading for technical traders.

One thing in particular to watch out for is the rather subdued volatility considering what could happen over the next week.

Technical Analysis

I think what’s happening in GBP/USD at the moment can best be described as the quiet before the storm.

I wouldn’t be surprised if the markets took advantage of this time to run the pair higher from here to shake out weak hands.

GBPUSD Daily Chart

Yesterday, the pair was capped by major resistance at 1.2287, and was sharply sold off to end the day in the red. The exchange rate also held below the 20-day moving average.

This level remains a critical line in the sand in the near-term. A push above it could lead to another test of resistance at 1.2373.

To the downside, major support falls at 1.2178. This level held the pair lower for a significant part of August.

Bottom Line

  • GBP/USD is catching a bid as the dollar declined against all its major counterparts in the early day.
  • Major resistance at 1.2373 held the pair lower yesterday and remains in play.
  • There is significant headline risk for the pair as the UK continues to try and reach a deal ahead of the EU summit.

EUR/USD Daily Forecast – Euro Breaks Above Critical 1.10 Resistance

Where Does EUR/USD Go From Here?

After spending a week battling major overhead resistance, EUR/USD has broken upward to signal a technical breakout. The question at this stage is whether the bullish break is signaling a long-term change in trend.

EUR/USD has not just rallied above 1.10 which is considered a psychological level. It has also broken higher from a downtrend channel that had encompassed price action since late June. in this context, today’s technical development is significant.

What might be a bit surprising is that the technical break occured even though there are still several major risk events that create uncertainty.

For starters, the US-China trade war remains a concern. There have been some developments, however, things are still very much in the air while high-level talks take place this week.

Adding further uncertainty is how things will play out with Brexit. A deal should be reached by the EU summit next week for the UK to leave the EU in an orderly fashion by the October 31 deadline. It doesn’t look like the UK is anywhere close to reaching a deal, putting a no-deal scenario back in play.

It’s also not entirely clear how US monetary policy will evolve from here. The Futures market is nearly fully pricing in another rate cut this month. Meanwhile, yesterday’s Fed minutes highlighted how divided policy members are on how perceived risks will impact the economy. Considering the recent string of weak data, it certainly seems another cut is in the cards. But it will be important what the market thinks will happen after that.

Technical Analysis

As mentioned, there has been a technical break in EUR/USD and it has been significant.

EURUSD Daily Chart

If we see a pullback at this stage, the breakout area, roughly around 1.10, should be supported to assert the view of a technical break.

Upside resistance for the pair is found at 1.1060. This level acted as support in August and resistance in early September. Further, the 50-day moving average has converged toward the level to add some confluence.

EURUSD 4-Hour Chart

There is a bit of a divergence playing out with the dollar index (DXY). The index is still holding above the 20-day moving average and the equivalent rising trendline from late June lows. For this reason, I think it’s important to view further price action in assessing if the technical break is in fact signaling a broader trend reversal.

Bottom Line

  • A technical break in EUR/USD could be signaling a trend reversal.
  • The prior resistance area around 1.1000 is now seen as major support.
  • There is a resistance confluence at 1.1060 which seems like the next major target for the pair.
  • A slight divergence is playing out in the dollar index. A technical break lower in DXY would provide confirmation that EUR/USD has put in a near-term bottom.

GBP/USD Daily Forecast – Sterling Recovers but Retains Bearish Tone

Merkel – Brexit Deal “Overwhelmingly Unlikely”

German Chancellor Merkel does not see a deal materializing unless British PM Johnson makes significant revisions in his latest Brexit plan.

Once again, the main issue is the Irish backstop as Merkel insists that Northern Ireland remains a part of the customs union.

Irish Prime Minister Leo Varadkar echoed Merkel’s words saying that it will be difficult to establish a deal by next week.

Sterling fell against all of its major counterparts yesterday as investors saw these latest developments as lowering the chance of a deal being struck for an orderly Brexit. At the same time, there have been talks of the UK government making preparations for an exit without a deal, reigniting fears of a no-deal Brexit.

GBP/USD recovered in early trading today, however, this appears to be more related to the dollar rather than Sterling strength.

Brexit uncertainties will tend to keep the British pound under pressure. Unless of course, there is progress towards a deal. The clock is ticking down as a deal should be made before the EU summit which takes place late next week. A recently passed law dictates that Johnson requests an extension if a deal is not made by then.

Technical Analysis

Perhaps the only certainty amidst Brexit talks is that volatility is likely to rise in the Sterling cross rates.

We already got a taste of this yesterday when the British pound fell broadly against all its major counterparts.

GBPUSD 4-Hour Chart

An early day recovery in the pair today came as a result of some dollar weakness. However, there has not been a clear indication that the dollar is turning at this point.

GBP/USD made a decisive break below a horizontal level at 1.2287 yesterday. So far, this level has capped the early day recovery.

A break of it could lead to further gains into the next area of resistance at 1.2327. While below 1.2287, the pair appears poised to test support at 1.2178.

Bottom Line

  • GBP/USD has recovered on the back of some dollar weakness. However, ongoing Brexit uncertainty will tend to keep selling pressure on Sterling.
  • The current sentiment is that a deal is won’t be reached to leave by the October 31 deadline. This can obviously change quickly and GBP/USD will be sensitive to ongoing developments.

EUR/USD Daily Forecast – Euro Holds Below Resistance Ahead of Fed Minutes

Trade War Progress to Offer a Catalyst for EUR/USD

There are a lot of things impacting EUR/USD at the moment, but trade talks taking place this week appear to be the most important factor for the exchange rate.

Yesterday, Fed Chair Powell reaffirmed the central bank is willing to do what’s necessary to sustain the expansion. Considering the string of weak US data as of late, investors viewed this as confirmation that another rate cut is coming. The CME’s FedWatch tool shows the market’s pricing in an 85% probability of a rate cut at the Fed meeting later this month.

Investors are looking towards the minutes of the last meeting for further clues as to what it would take for one more cut. The Fed cut rates at the last meeting although the decision was not unanimous. Two members had preferred to keep the interest rate unchanged. Meanwhile one member wanted a more aggressive 50 basis point cut.

The US-China trade war weighs heavily on Fed decisions and might be the largest focal point for EUR/USD traders. High-level talks will take place this week and there will certainly be an increase in headline risk for the pair.

Technical Analysis

Considering that the Fed’s next decision will be largely influenced by how trade talks progress this week, I don’t think there will be a big reaction to the meeting minutes that will be released later today.

EURUSD 4-Hour Chart

EUR/USD trades at an important resistance confluence as the 20-day moving average, which confluences with the psychological 1.1000 level, has been capping recent gains. Further, there is resistance from the upper bound of a declining trend channel. This channel has encompassed price action since late June.

It would not be surprising to see the pair continue to range below this important resistance area. At least until there is some further clarity on how trade talks are progressing.

Bottom Line

  • EUR/USD continues to range below important resistance.
  • Minutes from the last Fed meeting will be released later today. However, they may not have a big impact on the pair.
  • High-level trade talks will take place this week. This could be the biggest driver for the pair in the near-term.

GBP/USD Daily Forecast – Sterling Falls Under Pressure as Brexit Uncertainty Weighs

Brexit Talks Remain at an Impasse

With the clock winding down, the UK does not appear to be any closer to reaching a Brexit deal, causing a bit of a sell-off in the British pound. While the Brexit deadline falls on October 31, It is largely expected that a deal should take place before that.

A law was recently passed that forces PM Boris Johnson to request an extension if a deal is not reached by the EU summit which takes place late next week. From that perspective, there is just over one week left.

There is still a lot of uncertainty surrounding Brexit and the looming October 31 deadline. The main hold up is the Irish backstop and after a lot of back and forth, the EU and UK can’t seem to agree on the issue.

Technical Analysis

GBP/USD is under pressure in early trading, attempting to break an important support level. I think it is important to acknowledge that the dollar is weaker against all its counterparts in early trading except Sterling.

GBPUSD Daily Chart

The exchange rate is trying to break below a horizontal level at 1.2287. This level has held it higher on a daily close basis for over a week.

More significant technical developments are taking place in the Sterling cross rates. GBP/AUD, GBP/NZD and GBP/CHF all trade at fresh lows not seen since early September, or in some cases even before that.

While the technical outlook certainly looks bearish for Sterling, volatility is likely to rise with the EU summit nearing. In this context, Sterling traders should exercise caution over the next week or so.

GBPUSD 4-Hour Chart

Overhead resistance in the session ahead resides at 1.2287. If we manage to get above 1.2327, it might suggest a reversal is taking place. While below 1.2287, the next area of downside interest falls at 1.2178.

Bottom Line

  • Sterling is under pressure against all the major currencies.
  • Volatility is likely to pick up with the EU summit just over a week away.
  • Major resistance for the session falls at 1.2287. A daily close below the level would signal a bearish technical break with a first target of 1.2178.

EUR/USD Daily Forecast – Euro Makes Another Run at the 20 DMA

EUR/USD Boosted by German Data Beat

After a string of weak data over the past few weeks, industrial production figures out of Germany came in ahead of expectations.

Production in industry rose 0.3% on a month over month basis in August to beat out the analyst estimate for a decline of 0.2%. Further, there was an upward revision for July to show a decline of 0.4% versus the originally reported drop of 0.6%.

Producer price index figures from the US will be released later in the day and stand to trigger some volatility in the pair.

EUR/USD has been trading in a range between roughly 1.0965 and 1.1000 for the past two sessions. There is quite a bit of overhead resistance in play at this stage, although the pair has not shown any signs of turning lower from here as of yet.

Technical Analysis

For the past few sessions, I have been looking for a potential turn lower in EUR/USD as the pair faces a major confluence of resistance.

EURUSD Daily Chart

On a daily chart, the upside hurdle consists of the 20-day moving average as well as the psychological 1.1000 handle. Slightly above this resistance area, a further barrier comes from the upper bound of a declining trend channel that has contained price action since late June.

However, the pair continues to post successions of higher highs and higher lows to reaffirm the near-term uptrend. The pair printed a fresh two-week high yesterday albeit it was a marginal high and it was not sustained.

EURUSD 4-Hour Chart

At this stage, a drop below range support at 1.0964 would be encouraging for bears. While above the level, We may see the pair push higher to test the mentioned trend channel resistance.

The daily close will be important relative to the 20-day moving average if the pair continues to rally from current levels.

Bottom Line

  • EUR/USD continues to trade within a range.
  • The pair has been trending higher and has not shown any signs of reversing as of yet, although there is major upside resistance in play.

GBP/USD Daily Forecast – Range Persists Below 20 DMA

The Brexit Clock is Ticking

British Prime Minister Boris Johnson put forth a new Brexit plan last week that Parliament can likely get behind. However, officials in Brussels didn’t seem too excited about the proposal and highlighted several concerns.

Johnson has vowed to deliver an EU exit by October 31 but time is running out for the British PM. He will need to secure a deal by the EU summit next week or request an extension. I think its quite likely that further efforts from Johnson will tend to dominate headlines moving forward, causing a rise in volatility for Sterling pairs.

GBP/USD has been held higher, on a daily close basis, by a horizontal technical support level at 1.2287 since late September. At the same time, recovery rallies have struggled at resistance from the 20-day moving average to trigger a range.

A recovery attempt last week was hindered by the mentioned overhead resistance. The pair fell under further pressure after the US unemployment rate unexpectedly fell to 3.5%. However, losses were not sustained and the exchange rate is essentially directionless at this stage.

Technical Analysis

Support at 1.2287 is considered important as it offered major resistance in August to end a two-week recovery. Although the pair has fallen below the level on an intraday basis a few times, daily closes have held above it, indicating some strength.

GBPUSD Daily Chart

At the same time, Overhead resistance at 1.2373 carries confluence with the  20-day moving average and has held the upside.

A break from either level will tend to clarify the near-term directional bias for GBP/USD. Considering the looming Brexit deadline, we are likely to see a technical break from the range fairly soon.

The dollar has not shown any concrete signs of reversing against its major counterparts. From that standpoint GBP/USD has a slight bearish bias. But how things play out with Brexit will tend to trump dollar fluctuations.

Bottom Line

  • GBP/USD continues to trade in a range.
  • With the Brexit deadline nearing, volatility is likely to increase.
  • Range support for the pair remains at 1.2287, resistance resides at 1.2373.

EUR/USD Daily Forecast – Euro Falls in a Range Below 1.10

EUR/USD Attempting to End Four Day Winning Streak

EUR/USD rose in a recovery last week but was met with a hurdle of resistance late in the week near the 1.1000 handle. The pair is under a bit of pressure in early trading on Monday and is on pace to end a four consecutive day winning streak.

The pair saw a bit of selling on Friday following the US jobs report when the unemployment rate unexpectedly declined to 3.5%. However, buyers stepped in near 1.0966 support to keep the pair within a range.

Earlier today, German factory orders were reported to decline 0.6% in August which was below the analyst estimate for a decline of 0.4%. Economic data for the Euro area as of late has been mostly weaker and its starting to become a bit of a trend.

The highlight this week, in terms of economic data, will tend to be meeting minutes from the last central bank meetings in the US and Europe. As well, the latest US consumer price index figures will be released late in the week.

Technical Analysis

EUR/USD trades near an important resistance and this could be area where the pair might try and reverse lower, in line with the broader downtrend.

Resistance comes from the psychological 1.1000 level which is currently carrying confluence with the 20-day moving average.

EURUSD Daily Chart

Further, there is a declining trend channel in play that has been containing price action since late June. The upper bound of the channel offers additional resistance although the pair has not tested it as of yet.

It looks like EUR/USD is trying to turn, however, considering the light data docket a catalyst might be lacking. A move towards support at 1.0930 might offer a stronger signal that a near-term top is in place.

EURUSD 4-Hour Chart

On the other hand, a sustained break above channel resistance would suggest that a broader recovery is taking place. At this stage, I tend to favor the former scenario.

Bottom Line

  • EUR/USD is under a bit of pressure although has held within a range that’s played out over the past three session so far.
  • Important economic releases this week include the last Fed and ECB meeting minutes as well as US CPI data.

GBP/USD Daily Forecast – GBP/USD Recovery Held Lower by 20 DMA

Johnson Challenged in Court yet Again

British Prime Minister Boris Johnson is being called out for something most will agree is quite peculiar. The PM has repeatedly said he refuses to request an extension to the October 31 deadline if it comes to that. It’s unclear why he has stuck to this stance despite a recently passed law that forces him to request such an extension if he is unable to reach a deal by the EU summit.

Well, he may not have a choice in the matter as legal action has been taken to effectively force him to do so. Scottish National Party MP Joanna Cherry has taken the matter to court in hopes of coming up with a resolution. The legal case calls for a court-appointed official to sign extension papers if it comes to that. Further, it accompanies fines and potential jail time for the PM for refusing to request an extension.

Johnson has faced a series of defeats in his attempts to deliver an EU exit for the United Kingdom. This week, his new Brexit plan was met with quite a bit of opposition from EU officials, signaling little progress in reaching a deal with the clock continuing to run down.

Technical Analysis

GBP/USD has made a bit of a recovery in the second half of the week, leading to a technical development.

GBPUSD Daily Chart

The pair has held above major support at 1.2287 on a daily close basis. Further, it broke higher from a downtrend channel that has encompassed price action from the September 20 high.

At the same time, the 20-day moving average and a horizontal resistance level at 1.2373 has blocked the upside.

GBPUSD 4-Hour Chart

The pair trades in the middle of two important technical areas ahead of the US jobs report that typically accompanies an increase in volatility. We might see a technical break after the report which stands to clarify the near-term directional bias for the pair.

Bottom Line

  • GBP/USD trades in the middle of important support and resistance confluences.
  • A break below 1.2287 would reinforce the downtrend.
  • It will take a sustained break above 1.2373 to signal more upside for the pair.

EUR/USD Daily Forecast – 1.10 Holds Rally Ahead of US Jobs Report

EUR/USD Sellers Defend 20-Day Moving Average

A string of disappointing US data has triggered a recovery in EUR/USD leading to a one-week high yesterday. The pair extended gains on Thursday after disappointing data from the Institute for Supply Management (ISM).

Thursday’s data reflects a survey of purchasing managers not taking into account the manufacturing industry. The ISM’s index came in at 52.6 which was well below the analyst estimate of 55.1 and a prior reading of 56.4.

Earlier in the week, the ISM’s manufacturing PMI fell to a 10-year low. Further, the ADP’s jobs report came in a bit softer than expected, and to make matters worse, the jobs gain for the prior month was revised down.

The poor US data throughout the weak sets a low bar for the jobs report which tends to have a big impact on the markets. Further, the report usually precipitates speculation on what the Federal Reserve will do next. In this case, the markets will likely look at a weak report as a signal that the central bank will cut rates again fairly soon.

US Jobs Report to Set the Tone for EUR/USD

I have a somewhat contrarian view ahead of the data release. Indeed, the data this week has not been good but there are a few things that lead me to believe the report won’t cause an adverse reaction in the markets.

For starters, the average hourly component of the report has come in surprisingly strong as of late. It came in ahead of expectations in the last two readings and was revised up in the two before that. This suggests increasing demand for workers.

The analyst estimate has been set for 145,000 more jobs in September which is slightly higher than the last reading. This also provides some confidence that the jobs report might not follow the trend of gloomy economic reports this week.

Lastly, I think the market reaction to yesterday’s report is important. This is more noticeable in the equity markets than in the dollar. The markets did sell-off on the poor non-manufacturing report, however, recovered to close the day in the green, showing signs of a potential near-term bottom. Similar price action is seen in EUR/USD although not as abrupt as with equities.

For these reasons, I’m speculating that the dollar might be nearing a bottom. Of course, anything can happen and the jobs report will ultimately set the tone.

Technical Analysis

The technical outlook for EUR/USD also supports the idea that the recovery that’s taken place this week might be near an end.

EURUSD Daily Chart

Yesterday, the rally was blocked by the 20-day moving average as well as horizontal resistance from the psychological 1.1000 handle.

Further, there is resistance from the upper bound of a declining trend channel that has contained EUR/USD since late June.

Unless the pair closes above 1.1000 at the end of today’s session, there is potential for a reversal to take place in this area.

Bottom Line

  • The EUR/USD recovery this week is losing momentum as it trades near a major resistance confluence.
  • Today’s US jobs report will ultimately set the tone for the pair.
  • A daily close below 1.1000 could trigger a reversal, in line with the broader downtrend.

GBP/USD Daily Forecast – Sterling Showing Signs of a Recovery

EU Officials dismiss Johnson’s Proposal

Johnson’s new Brexit plan, which he made sound promising, turned out to be a dud as EU officials widely dismissed his proposal on Thursday.

Similar to previous communications from Brussels, officials felt it did not have a clear solution to deal with customs and disagreed with the idea of a hard border in Ireland.

The proposal was seen more as a starting point for discussions which is worrying as time is running out with the EU summit only two weeks from now.

If Johnson is unable to secure a deadline by the summit, a recently passed law forces him to request an extension to the October 31 deadline. The exception is if he can convince parliament to leave without a deal in place which seems unlikely.

UK Services Sector Activity Contracts for First Time in 3 Years

The services sector, which accounts for the largest part of the economy, was reported to contract in September, signaling worries of a recession.

IHS Markit reported jobs in the service sector were cut last month at the fastest pace in nine years. Further, the Future Activity index declined to a more than three year low, weakening expectations for activity.

Technical Analysis

Despite the poor economic data and disappointing Brexit progress, GBP/USD is catching a bit of a bid on Thursday. The pair is benefiting from some dollar weakness which has led to a two-day recovery in EUR/USD.

GBPUSD 4-Hour Chart

For most of the week, I’ve been focused on support at 1.2287.  This level confluences with the 200 moving average on a 4-hour chart. While the pair dipped below it earlier in the week, it has managed to climb above it at this stage.

Further, GBP/USD has also broken upward from a downtrend channel. This signals the potential for a bit of a recovery.

GBPUSD Daily Chart

I’m looking for a rally towards resistance at 1.2373. The 20-day moving average has converged towards the level to create a confluence. For this reason, I think this is an area that will hold sellers.

Bottom Line

  • Johnson’s proposal still needs a lot of work and time is running out in reaching a Brexit agreement.
  • GBP/USD has held above important support and there’s potential for a recovery.
  • A horizontal level at 1.2373 carries confluence with the 20 DMA to create a resistance confluence for recoveries.

EUR/USD Daily Forecast – Euro Recovers for Second Straight Session

Poor Jobs Report and More Tariffs

The trend of weak economic data continued on Wednesday as the ADP reported an increase of 135,00 jobs in the US private sector from August to September. While this was only marginally below the analyst estimate, there was a notable downward revision for the prior reading from 195,000 to 157,000.

Earlier in the week, the ISM reported the manufacturing index to contract for the first time in three years. The sector appears to be weak globally as trade war concerns have weighed.

Further exacerbating the issue, the White House announced on Wednesday their intentions to expand the trade war out to Europe. Officials said they would place a 10% tariff on Airbus planes made in Europe and 25% on certain alcohol products as well as cheese.

The measures are set to take effect on October 18. Negotiations are to take place ahead of that and the European Union will attempt to strike some kind of a deal to prevent the new tariffs.

Technical Analysis

The dollar is under a bit of pressure in the early week although it has gained against the commodity currencies.

EURUSD Daily Chart

EUR/USD is seen trading near a horizontal level at 1.0966 which marks the lowest daily close in the first half of September. While the pair could pull back a bit here, I think we will see the recovery extend a bit higher.

There is some major resistance in play in around 1.0996, or essentially the 1.1000 handle. The level carry psychological implications amd carries confluence with the upper bound of a trend channel that has contained price action since late June.

EURUSD 4-Hour Chart

While the pair holds above the important 1.0930 level, I expect it will attempt one more leg higher to test this important resistance area.

Bottom Line

  • EUR/USD is recovering higher, boosted by weak US data
  • A major resistance confluence comes into play at 1.0996.