This week's eyes will be on central banks' rate decisions and the last chapter of the Brexit saga. How GBP/USD will react to final updates?
Moment of Truth
Investors follow closely current EU-UK negotiations with a Déjà vu feeling, as some sources report that the UK cabinet backs the PM over no-deal Brexit. Nonetheless, both sides are meeting on Sunday in a final attempt to reach a “fair” deal. The time window is closing yet, there is still a good possibility to strike a last-minute deal in a similar way to last year’s scenario.
Significant differences as fisheries and fair competition separate both sides. The EU fears that the UK could become a low-regulation economic area, and also demand that EU fishermen have access to the UK waters for the coming 10 years, while the UK wants to recover control on its water and economic policy.
The ECB’s Options
The market expects this week the ECB governing council to ease its monitory policy further. The central bank could increase its quantitative easing program by 500 Billion Euros and may provide European banks with better lending conditions through its TLTRO program. Additionally, the ECB may cut interest rates by 10 basis points although, the last option remains unlikely.
Key Data Releases
On Monday, December 7, investors await RBA governor Lowe’s speech and the Chinese balance of trade figure of November.
On Tuesday, December 8, markets will focus on the Japanese GDP final read (Q3), Switzerland unemployment rate of November, the Eurozone GDP (Q3), and Germany ZEW economic sentiment index of December.
On Wednesday, December 9, markets will follow the Chinese inflation rate of November, the Bank of Canada rate decision, the change in the US oil inventories, and the Bank of England financial stability report.
On Thursday, December 10, eyes will be on the Japanese PPI number of November, the UK GDP YoY of October, the ECB rate decision, the ECB president Lagarde’s press conference, and the US inflation figures of November.
On Friday, December 11, markets will follow the German inflation numbers of November, the Euro summit, the Michigan consumer sentiment index number of December, and the Fed member Quarles Speech.
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GBP/USD Daily Price Chart (September 8 –December 6, 2020)
On November 13, GBP/USD climbed to the current 1.3185- 1.3460 trading zone, the price failed twice last week to climb to a higher zone and reflected a weaker bullish sentiment. Therefore, the pair could reverse direction towards the low end of the zone.
A daily close below the low end of the trading zone at 1.3185 may encourage bears to press towards the monthly support level at 1.2916.
On the other hand, a daily close above the high end of the zone at 1.3460 may cause a further rally towards the monthly resistance level at 1.3747.
GBP/USD Four Hour Price Chart (November 6 – December 6, 2020)
On December 2, GBP/USD rebounded from the bullish trendline originating with the November 16 low at 1.3165 and indicated that the bullish momentum was still intact.
In conclusion, while the bullish bias is still in place a violation of the aforementioned bullish trendline concludes that bulls are losing momentum therefore, a break below 1.3380 may send the price even lower towards the low end of the current trading zone discussed above on the daily chart at 1.3185. On the other hand, a break above 1.3554 may trigger a rally towards 1.3710. As such, the support and resistance levels underlined on the chart should be in focus.
Sources: Skynews, Bloomberg, Reuters
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