- GBP/USD shrugged off the Brexit extension to October.
- The economic calendar may finally have a say, and it's packed.
- The technical picture is balanced for the pair.
This was the week: Brextension to Halloween
The European Union decided to postpone Brexit to October 31st, Halloween, beyond May's request for a shorter extension to late June but short of the long extension that some members wanted, to March 2020, as French President Emmanuel Macron took a tough stance. The "Brextension" is also a "Flextension": the UK can leave earlier if it manages to approve the Withdrawal Agreement, which the EU staunchly opposes.
The pound shrugged off the news. A long extension was mostly priced in and did not change the uncertainty surrounding Brexit. The House of Commons remains deeply divided. At the time of writing, talks between PM Theresa May's Conservatives and Jeremy Corbyn's Labour were ongoing, but without a breakthrough.
Some members of May's party called her to go, but the rebellion was not as loud as some have expected. The pushback of the Brexit date seemed to have calmed nerves.
In the meantime, the economy seems to be doing well. GDP grew by 0.2% in February, above expectations. Increases manufacturing output and other components accompanied the publication.
In the US, core inflation decelerated to 2.0%, removing pressure from the Fed to raise interest rates. The FOMC Meeting Minutes showed that the central bank is not going anywhere fast and that an interest rate cut is also a possibility. The US economy did get good news from the labor market, as jobless claims dipped below 200K, to the lowest levels since 1969.
What's next with Brexit? The original options are on the table
In theory, the UK could still leave in late May and not participate in the European Parliament elections. However, Parliament is now on a much-needed break until April 23rd. That may help them reach an agreement, as talks between the two main parties continue.
The government could soften its stance on a softer Brexit, with a full customs union, which is Labour's approach. But given the recent past, it may take more than that to find some common ground.
The other options have not changed: a second referendum on the deal, early elections, or a change of leadership at the top. According to the Conservative Party's rules, a no-confidence motion cannot be triggered until December. However, pressure on May may mount, and she could be forced to quit.
In any case, the pace of events is set to slow down, at least until Parliament reconvenes, thus allowing other events to move Sterling.
UK events: Jobs, inflation, and retail sales
As Brexit is leaving some space for other factors, the economic calendar in the UK is quite packed. Three top-tier events await traders.
The UK will release its jobs report on Tuesday. The previous report was quite positive. Wages, both including and excluding bonuses, were up 3.4% in January and they have likely remained upbeat in February. The Unemployment Rate is set to rise, albeit from the low level of 3.9%. The Claimant Count Change, which has been showing a worrying rise in jobless claims in February, may moderate in March.
The inflation report stands out on Wednesday. Headline, Consumer Price Index, was just below target in February with 1.9%. A substantial drop is projected now, due to the belated effect of falling oil prices. However, Core CPI is forecast to remain unchanged. The Retail Price Index is set to decelerate on an annual basis.
Retail sales stand out on Thursday. Consumption rose by 0.4% in February, and 0.2% excluding fuel. Year over year, the UK still enjoyed considerable increases. Moderation is expected now.
All three reports are top-tier and were quite upbeat in their previous installments. Will they continue showing a resilient UK economy? Or is Brexit beginning to bite? This is a crucial question. The latest Purchasing Managers' Indices for March have been downbeat, reflecting the Brexit uncertainty. We may or may not receive a confirmation of the slowdown via the hard data.
Also, news related to the ongoing trade negotiations between the US and China are also eyed. At the moment, both sides express optimism, but a summit between the presidents has not been set.
Here are the events lined up in the UK on the forex calendar:
US events: Retail sales stand out
Industrial output is projected to rise in March after remaining flat in February, and the trade balance is predicted to show a widening deficit.
The main dish is on Thursday with the release of retail sales, on the same day as the UK. The US enjoyed saw volatile numbers in December and January, and February finally saw some moderation, albeit to the downside. Rises of 0.4% are projected in both core numbers.
Housing data is also of interest, but Building Permits and Housing Starts tend to offset each other.
Here are the scheduled events in the US:
GBP/USD Technical Analysis - In a wedge
Pound/dollar is trading in a narrowing wedge or triangle. Both uptrend support and downtrend resistance begin around the same time in early March, but downtrend resistance is much steeper. In theory, volatility should narrow as the wedge narrows and then explode. But to what direction?
Momentum leans to the downside, but the Relative Strength Index is balanced for quite some time. All in all, the technical picture is marginally dovish.
1.3030 provided support in April and is the initial support line. 1.2980 is the low point for April. 1.2960 was the low point in March and where the uptrend support line begins. 1.2895 separated ranges in mid-February. 1.2830 is next.
1.3124 capped the pair in mid-April and serves as the initial resistance line. 1.3200 is a round number and also the high point in April. The 1.3260-1.3270 area capped the pair in late March and also beforehand. 1.3315 was a stepping stone on the way down in April, and 1.3388 was the cycle high recorded in mid-March, where the downtrend resistance line begins.
While a hard cliff Brexit was avoided, uncertainty about Brexit prevails. And now, it's time for the hard data. We may see that Brexit already began biting and the pair could suffer.
The FXStreet Poll shows a mild bearish bias in the short term and rises afterward. Only the medium-term forecast saw a significant change, to the upside. The rest were unchanged. Experts probably see an upside in the delay in Brexit.
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