There still isn’t much light at the end of the tunnel for the pound
The pair trades around 1.2240 levels currently but with little poise to go searching for an upside breakout despite a weaker dollar. That isn’t really surprising considering how Brexit circumstances are playing out and the technicals are supporting that sentiment.
The risk levels limiting any downside move remain near the 1.2200 handle with the 61.8 retracement level @ 1.2197 and bids around the figure level helping to lend buyers some relief for the time being.
Meanwhile, for any upside move to extend further, it requires a break of the key hourly moving averages around 1.2268-85 currently. If buyers can’t muster enough conviction to do so, I don’t see any potential for a lasting jump in cable.
The dollar side of the equation is now the immediate focus with the greenback slightly weaker across the board as trade optimism recovers slightly on the day.
US-China trade talks will be the key near-term driver but watch out for the technical levels above to determine how things may play out in cable over the next few sessions.
As for the pound side of the equation, it’s all about Brexit still. The way I see it unfolding is that the pound will stay pressured over the next week heading into the European Council meeting as a no-deal outcome stays on the table and hopes of a deal remain low.
But switch over beyond 19 October, I reckon there’s potential for gains in the quid as an extension certainly is the more favourable outcome – despite Boris Johnson’s bluff.
And so far, even the options market is siding with that sentiment as 1-week risk reversals in cable have switched to favour upside in the pound now:
