Brexit and the EURGBP

Daily Analysis - 03/01/2018

EURGBP the microcosm of Brexit talks

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The EURGBP pair is the thermometer and stethoscope of the Brexit negotiations. We watch it to get a sense of the markets’ perception of the progress in the talks as well as the net effects on the now diverging economic zones. Volkswagen is showing strength today. Coffee is VERY strongly up and oil is steady at $60, but not for long.

EURGBP in consolidation between .87 and .90


The divorcing couple currency pair, the EURGBP, is oscillating between .90 and .87 and has been since the middle of September of 2017. It is falling in the short term and today’s signals hold a sell indication. The question is where it is going in the longer term. We think that it will continue its weakness. Remember, following the vote in June 2016 to leave the EU the GBP has weakened by over 20%. Using the Fibonacci retracement indicator, we can see that the oscillating price mentioned above and so if EURGBP breaks above the .90 level it will move on to higher levels, meaning the GBP is weakening against its EUR cohort. Fundamental signs of this weakness will be deterioration in the Brexit talks as well as weakness in economic performance within the British economy, as seen by today’s decline in the December Construction PMI report.

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Coffee giving a buzz


The chart of coffee is enough to make any caffeine addicted trader swoon. At press time the price is 130.00, meaning $1.30 per pound. Our first price target is 130.65 and our second 131.35 with corresponding resistances at 130.75 and 131.50 respectively. On the down side, we see 128.64 as the high support level and 128.10 as the low support level.  No obvious meteorological phenomenon have registered on our radar screens coming from either Brazil or Kenya. It appears to us that this is a correction in a very long and sharp decline in price following the peak reached in late 2016 following the serious drought conditions which prevailed in The Robust region of Brazil. Coffee is a temperamental plant horticulturally and a bad season can affect the flowers of the following season too. Technical or fundamental, it’s a fine trading opportunity. Buy coffee.

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Volkswagen on the mend to higher price


Volkswagen shaking off its long declines form the 2015 diesel engine testing scandal where the US government fined the Wolfsburg Germany engine and vehicle manufacturer for willfully rigging its emissions data in each diesel vehicle sold in America. The Federal Trade Commission slapped a fine of 16 billion dollars and a mandatory retrofit of all vehicles sold with the bogus software AND convicted the US Chief and sent him to prison for seven years. This monkey business had a sever effect on the stock price. Well, sales have been strong in 2017 and the stock price is reflecting that.  Currently having retraced 50% of the huge decline (58% at the time of the decline) it is making strong efforts to break upwards and return to its former glory.  Look for price to break above 175 per share. Should it do so, it will likely continue to the 200 zone. Onwards and upwards. Excelsior.

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Oil and the brave Iranian citizenry


It is the rare occasion when people stand up on their hind legs and speak truth to a repressive dominating power. Be that in a marriage, workplace or a nation. The citizenry was cowed and treated harshly for years under the Shah with the blessing of his US benefactor. The Ayatollah Khomeini put a stop to the Pahlavi Peacock regime in 1979 by replacing the monarch with a theocracy. Since 1979 Iran has seen two distinct episodes where the citizens have shown their displeasure with their rulers. This is the second since the first in 2009. Keep a careful eye on what goes on in Iran, not only for the humanity of the matter but also because it can affect the price of oil. Currently it is not doing so as none of the unrest and demonstrations are taking place near any of the oil centers. (This courtesy of Dr. Ellen Wald, one of the best sources of information in the world when we talk of the oil patch.) Nor is it likely to spill over to this sector UNLESS, the oil workers go out on strike. The last time this happened was in 1979 when, in the effort to bring down the Shah Reza Pahlavi the striking oil workers reduced output from 4.5 million barrels per day to 1 million. We are surely not there yet. But, watch this slow burner. It could very well ignite and possibly detonate.

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