Brexit is dominating the Forex market this week. The pound is under intense scrutiny by market participants. On Thursday, it shed 2.3% against the greenback to reach 1.2735. This drop was caused by reports of UK Brexit Minister Dominic Raab’s resignation. Another piece of news that took its toll on the pound was that of the prospect of Prime Minister Theresa May facing a no-confidence vote. The single currency dropped to 1.1271 against the dollar on the back of this report, although euro bulls quickly recovered these losses in Europe and pushed on to a new session high of 1.1362.
Day’s news (GMT 3):
- 13:00 Eurozone: CPI (Oct).
- 16:30 Canada: foreign portfolio investment in Canadian securities (Sep), Canadian portfolio investment in foreign securities (Sep).
- 17:15 US: industrial production (Oct), capacity utilisation (Oct).
- 21:00 US: Baker Hughes US oil rig count.
Fig 1. EURUSD hourly chart.
I had to adjust yesterday’s upwards channel from 1.1222. The pair is now trading above the balance line, which is consequently now acting as a support (1.1314). The LB line is running 22 pips above the lower line of the channel. If our pair drops below 1.1295, we won’t see any subsequent growth. We need to keep an eye out for breaking news on the Italian budget, which could potentially sink our pair.
My forecast shows continued growth within the channel up to 1.1395. If the euro strengthens on the back of a broadly weaker dollar, then the 1.1430 mark will likely be tested. The stochastic is up. We could see a rebound towards the LB.
The Eurozone’s CPI report for October takes centre stage today. If it doesn’t disappoint, we should continue moving upwards without a pullback. Experts expect year-on-year inflation to remain unchanged at 2.2%. ECB President Mario Draghi is scheduled to speak at 11:30 (GMT 3). Since it’s not a press conference following an ECB meeting, his comments shouldn’t have much of an effect on markets.