GBP weekly overview; 31st Oct-4th Nov 2016

strong>Summary
Last week we saw a flurry of pound bullishness, pushing the price up through the 1.25 handle. This is was mainly driven by politically important news, mainly in relation to Brexit concerns. The British high court has decided the government does not have the power to trigger article 50 without consulting parliament, bringing what appears to be a halt to Theresa May’s attempt at a “Hard Brexit. It must be noted that this does not necessarily challenge the notion of Brexit itself, but does seem to bring back investor confidence, for how long however, will have to unfold. Furthermore, the BoE had kept interest rates unchanged ( at 0.25%- a record low), the outcome of a unanimous vote. Noted however, within the BoE they had announce that “monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target.”. Shown within the inflation report however, the BoE has revised its inflationary projections up to 2.2% for the year, downplaying the chances of any further rate cuts. Last week we had mixed data between BoE consumer credit, M4 Money supply , mortgage approvals, mortgage lending, net lending to individuals, Nationwide HPI (MoM) and (Yoy). Manufacturing numbers came out lower than expected, while construction PMI as well as services PMI surprised to the upside. All in all the pound seems to be being perceived as a less risky investment, while political uncertainty also seems be temporarily muted. Very importantly, it is the United States elections this coming week, and large increases in volatility is expected. Apart from election based volatility, due to reasons mentioned above, along with the fact that GBP prices closed higher agaisnt all its counterparts for the week ( shown below), I am a bull on the pound.

Technical Summary week; 31st Oct-4th Nov

GGBP/USD; Price opened at 1.2181 and closed at 1.25148 ( pound stronger)
GBP/JPY; price opened at 127.5600 and closed at 128.991 ( pound stronger)
EUR/GBP; price opened at 0.9011 and closed at 0.88891 ( pound stronger)
GBP/CHF; price opened at 1.2033 and closed at 1.21063 ( pound stronger)
GBP/CAD; price opened at 1.6279 and closed at 1.67723 ( pound stronger )
GBP/AUD; price opened at 1.6079 and closed at 1.63040 ( pound stronger)
GBP/NZD; price opened at 1.70782 and closed unchanged ( pound unchanged)

Overall; GBP exerted dominance over all its counterparts.

COT Report; 25th Oct- 1st Nov FULL REPORT HERE
Overall we have seen a slight increase in net long non-commercial positions, along with a slight decrease in net short non-commercial positions, whereby net short non-commerical positions still greatly exceeding net long non-commercial positions. Weekly closing price higher along with an overall increase in net non-commercial positions.

BoE consumer credit- – lower than forecast More info here
M4 Money Supply – lower than forecast More info here
Mortgage Approvals (sep) – Higher than expected More info here
Mortgage Lending (sep) – Higher than expected More info here
Net Lending to Individuals – Higher than expected More info here
Manufacturing PMI – Lower than expected More info here
Nationwide HPI (YoY) (Oct) – Lower than expected More info here
Nationwide HPI (MoM) (Oct) – Lower than expected More info here
Construction PMI (Oct) – Higher than expected More info here
Services PMI (Oct) – Higher than expected More info here
BoE MPC Meeting Minutes FULL REPORT HERE
BoE interest rate decision ; unchanged at 0.25%
BoE Governor Marc Carney’s Speech; Key points

Upcoming data for week of 7th-11th Oct
Monday– Halifax House Price Index (MoM) (Oct), Halifax House Price Index (YoY (Oct)
Tuesday – Industrial Production (YoY) (Sep), Industrial Production (MoM) (Sep), Manufacturing Production (MoM) (Sep),
Wednesday – Trade Balance (Sep), Trde Balance Non-EU (Sep)
Thursday – RICS House Price Balance (Oct)

Price chart Technical Overview

GBP/USD Daily Chart

As we can see, price had bottomed last month around the 1.20160 area as shown on my chart. This may be viewed as the current bottom as price has risen steadily from here, and has failed to break below this post "flash crash" level. Furthermore, we have broken the 1.25 handle, and has also broken above current downtrend line, whch may be retested as future support, all within the green area, which is where bulls may buy, indicating possible future bull strength in that area . Price has started the month at MM2, broken through MPP, and is close to testing MM3, marked by my arrows on the chart. price has begun to enter seliing territory, marked as the yellow zone on my chart, which also coincides with the downward fib levels between 38.2 and 61.8. Thus, for the time being, price may have found resistance.

GBP/USD H4 chart

As we can see, price is trading steadily upwards from the current bottom of post "flash crash'range. Price had started the week at WM2, reached its inital target of Wr1, broke through that level, reached next target of WM4 and WR2, leaving us with the final indication of strong bullish conviction, as shown by the break of the 1.25 (WR3) handle. Price is trading above the both uptrend lines as shown in red on my chart, is still in the bullish zone, shown by the green in my chart and is thus still considered bullish. We are however heading into the Bear zone, as indicated by the yellow on my chart, and some resistance to this upward move is thus expected.

GBP/JPY Daily chart

As we can see, price had bottomed around the 124.1513 area last month as shown on my chart. This may be viewed as the current bottom, as price has failed to break below this post "flash crash" level. Furthermore, we have broken the top of last month's range, along with a break of the descending trend line, indicted on my chart, giving us the potential for further bullishness after confirmation of role reversal trend line re-test, indicated by second upward arrow on my chart. price has started the month off at mm2, broken though mpp, and heading towards first target of mm3, with the potential of reaching second target of MR1. We are coming from the bull zone, shown in green, into what the bear zone, shown in yellow. we can see there is potential role reversal resistance there, and is within the bear downward fib levels, thus resistance is to be expected.

As shown by bottom most upward trend line, price is steadily ascending. price begun the week at wpp, rose up to wm4, where bears pushed price down to ws1, (Which is the trend line re-test as shown on daily chart), from there price rose sharply. Bullish targets of wm3, wr1 and wm4/wr2 have been hit,. Further bullish conviction may be seen by the break of last month's Range. We are moving into bearish territory, marked by the yellow on my charts, and thus resistance is expected early in the week..

One thought on “GBP weekly overview; 31st Oct-4th Nov 2016”

Damith says:

November 6, 2016 at 8:56 am

great analysis Dom….

i might be a contrarian though and sell the pound with risk off sentiment?? it’s going to be an interesting week!!

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