GBP/USD – Chaos over Brexit and manufacturing decline send pound crashing

GBP/USD has started the week with sharp losses. In Monday’s North American trade, the pair is trading at 1.2547, down 1.42% on the day. On the release front, GDP for October was up 0.1% from September. Manufacturing Production declined 0.9%, well off the forecast of 0.0%. On Tuesday, the U.S. releases Producer Price Index reports.

The Brexit saga reached a fever pitch ahead of a scheduled vote in Parliament on the Brexit withdrawal vote on Tuesday. However, in a dramatic turn of events, the historic vote was deferred on Monday until an unknown date. The government pulled the plug after it became clear that it would face a massive defeat, which could have crippled the government, possibly costing Prime Minister her job.

The European Union, for its part, has flatly ruled out renegotiating the withdrawal deal, although May told parliament that she would approach European leaders in order to improve the agreement before it was voted upon again. Both the EU and the British government want to avoid a no-deal scenario, so perhaps the EU will bend in order to help May pass a deal in parliament. The confusion surrounding Brexit and the disarray of the May government, highlighted by the deferred vote in parliament, has unnerved investors and sent the British pound sharply lower on Monday.

In the U.S., the week ended with soft employment numbers. Nonfarm employment change was weaker than expected, plunging from 250 thousand to 155 thousand. This was well off the forecast of 198 thousand. Wage growth remained stuck at 0.2%, missing the estimate of 0.3%. There was better news from the unemployment rate, which remained at a sizzling 3.7%. The data points to slowing growth in the U.S, which could lead to a change in monetary policy. The Federal Reserve minutes from the November meeting indicated that policymakers discussed changing their stance of gradual increases rate increases. The markets are currently looking at one rate hike next year – just a few months ago, analysts were predicting up to four rate hikes in 2019.

European open – Tough week for UK and markets

Global growth and Brexit fears dominate proceedings

GBP/USD Fundamentals

Monday (December 10)

• 4:30 British GDP. Estimate 0.1%. Actual 0.1%
• 4:30 British Manufacturing Production. Estimate 0.0%. Actual -0.9%
• 8:24 British NIESR GDP. Estimate 0.3% 
• 10:00 US JOLTS Openings. Estimate 7.22M
• 10:30 British Prime Minister May Speaks

Tuesday (December 11)

• 4:30 British Average Earnings Index. Estimate 3.0%
• 4:30 British Unemployment Rate. Estimate 4.1%
• 4:30 British Claimant Count Change. Estimate 13.2K
• 8:30 US PPI. Estimate 0.0%
• 8:30 US Core PPI. Estimate 0.1%

*All release times are EST

*Key events are in bold

GBP/USD for Monday, December 10, 2018

GBP/USD December 10 at 11:55 EST

Open: 1.2728 High: 1.2759 Low: 1.2507 Close: 1.2547

GBP/USD Technical

GBP/USD was flat for most of the Asian session. The pair dropped sharply in the European trade and this downward trend continues in North American trade

• 1.2589 is providing support
• 1.2706 is a weak resistance line
• Current range: 1.2706 to 1.2812

Further levels in both directions:

• Below: 1.2488, 1.2365 and 1.2229
• Above: 1.2589, 1.2706, 1.2812 and 1.2915

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