Euro Gaps Lower vs British Pound Ahead of ECB, Brexit Volatility

Brexit, Euro, GBP – TALKING POINTS

• Euro, GBP brace for Brexit volatility as government flounders
• Bare data docket leaves traders focusing on fundamental risks
• Euro volatility may be curbed by upcoming ECB rate decision

Learn how to use political-risk analysis in your trading strategy!

The British Pound and Euro will likely find themselves being torn by Brexit-related volatility amid a bare data docket. A report by The Telegraph recently stated that UK Prime Minister Boris Johnson is looking into legal ways to circumvent a law that was passed in Congress last week that compels him to request a three-month Brexit extension by October 19 if he is unable to reach a deal by that point.

However, given the state of UK politics, it is difficult to say with confidence that the government has secured a unified position on the matter. 21 conservative lawmakers have been expelled from the party after they supported a bill that rejects a no-deal Brexit outcome. Others have defected or resigned like Pension Secretary Amber Rudd who’s scathing message to the Prime Minister sent out a political shockwave.

EUR/GBP TECHNICAL ANALYSIS

Heading into Sunday’s session, EURGBP gapped lower along with other Euro crosses. A possible reason behind the price move may be due to the expectation that the ECB will deliver aggressive stimualtive policies market participants have been pricing in. These include a rate cut and the reintroduction of QE. However, EUR/GBP’s decline may be reversed if the ECB is not as dovish as investors hoped it would be.

EUR/GBP Gaps Lower

EUR/GBP chart

EUR/GBP is now trading below a key support-now-turned resistance level and could stay within a congestive range between 0.8974-0.9039. The pair have already broken through several key support channels and barriers and could be gearing up to clear more if momentum is maintained. However, political volatility from Brexit and the ECB rate decision this week may distort the technical set up.

EUR/GBP – Daily Chart

EUR/GBP chart 

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Gold Price and Silver Outlook: Too High to Buy, Too Strong to Short

GOLD & SILVER PRICE TECHNICAL OUTLOOK:

• Gold momentum stalling at long-term resistance
• Silver overbought and in need of a correction

GOLD MOMENTUM STALLING AT LONG-TERM RESISTANCE

During the first half of last month gold extended into the long-term resistance zone (1522/75) created during the 2011/12 topping process. Since then it has struggled to climb much higher in a sustainable manner. This is anticipated to remain the case in the near-term, with rallies as seen as likely to continuing to fade.

An actual pullback would be a good thing for not only alleviating overbought conditions, but also allowing would-be dip-buyers an opportunity to enter at better prices. Horizontal movement, or a 'time correction', would also be a bullish alternative, but will need, well, time for this to run its course.

From a short-term tactical standpoint, shorts aren’t yet appealing despite overbought conditions into resistance. The reason being is any correction which unfolds may be a bit of a grind sideways to lower as often times corrections tend to unfold in this manner in strong trends.

The first spot to watch as support is the lower parallel rising up from May. Should that fail to hold as support near 1500, then a larger correction towards the mid-1400s may develop. Even if gold falls that far, it wouldn’t do any real damage the move higher over the past year.

GOLD PRICE DAILY CHART (MOMENTUM STALLING AT LONG-TERM RESISTANCE)

Gold Price Chart 

SILVER DAILY CHART (HAS SHORT AND LONG-TERM SUPPORT LINES)

Silver has gone parabolic as of late, making up lost ground compared to gold in recent years. This has led to overbought, overly bullish conditions. There aren’t any great price levels as resistance until you get up to around 20.70/21+, but this doesn’t mean it won’t correct ahead of those levels.

Tactically, shorting here doesn’t hold much appeal, but neither does entering fresh longs. Sort of stuck in a ‘too high to buy, too strong to short’ phase at the moment.

SILVER DAILY CHART (VERY EXTENDED)

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