GBP/USd bulls making headway towards the 1.28 handle
- GBP/USD has popped on Christmas Eve in European and US markets, rallying from a low of 1.2635 to a high of 1.2735, breaking the 21-D SMA at 1.2694.
- The greenback is getting shunned as the Government Shutdown rings alarm bells to markets that are already awash with a risk-off sentiment from various headwinds.
- Bulls eye the 38.2% Fibo of Sep's downtrend for a residency on the 1.28 handle.
Cable was below the 21-D SMA before the US open when US stocks slipped over the edge as concerns mount over the global growth outlook. Markets are fixated on the US federal government that partially closed down on Saturday because President Trump refused to sign a spending bill on Friday by midnight that does not include funding for the border wall. However, the Democrats have made clear that they will not vote for such a spending bill. While we have seen this before, and can note that the average government shutdown lasts 6-7 working days, (the longest shutdown (1995-1996) took 21 working days). Markets tend to weaken on the speculation for such an event and then bounce back on the fact.
However, the concerns are that this could go on well into January where the political dynamics will have changed when the new Congress starts on January 3 - The Democrats will have a majority in the House of Representatives. This has come at the same time as the Fed turns dovish which is also a wright on the greenback. However, for Trump, the Fed is not dovish enough which is another factor in the mix of great uncertainties about how the start of the New Year will look like in US politicals.
The Plunge Protection Team
Today, Mnuchin is convening the president’s working group on financial markets, AKA, the "Plunge Protection Team" which is a group that includes
The Secretary of the Treasury, or his or her designee (as Chairperson of the Working Group);
The Chairperson of the Board of Governors of the Federal Reserve System, or his or her designee;
The Chairperson of the Securities and Exchange Commission, or his or her designee; and
The Chairperson of the Commodity Futures Trading Commission, or his or her designee.
The group was created following the stock market crash of October 1987 and met in 2009 in the latter stages of the financial crisis.
Brexit angst to resume on UK government return
Meanwhile, British Prime Minister Theresa May’s plan to withdraw her country from the European Union in an orderly fashion is collapsing. While the UK government is out for holidays, it will not be too long that Brexit agnst kicks in again for the New Year.
"Though she has survived a no-confidence vote, in January the House of Commons will almost certainly reject the exit deal she negotiated with EU leaders. In order to avoid a chaotic “no-deal” Brexit, her government will have to ask the EU for an extension on the departure date, or withdraw its “intention to leave” notification, at least temporarily," analysts at ING Bank wrote.
A close above 1.2710 leaves the door open for a run to 1.2840 as the current December high. A stronger level of resistance comes in at 1.2911 and while below there, the broader bias is to the downside. On the flipside, below 1.2477 targets the 78.6% retracement at 1.2109. From the indicators, on the hourly, RSI is headed into overbought. Daily sticks have more room to run and a break above the 38.2% Fibo Sep's downtrend is the bulls objective which could open the gates for a residency on the 1.28 handle.