Investors watching GBP prior to the meeting between Johnson and Merkel
The euro was relatively unchanged as the crisis in Italy continued. Yesterday, the country’s prime minister, Giuseppe Conte resigned from office after months of government squabbling. He resigned after accusing Matteo Salvini of weakening the country by calling an election. Salvini is the populist leader of the League party and the interior minister. The resignation means that the League Party will need to find another coalition party to avoid a snap election. These political issues are coming at a time when the EU economy is going through a down-turn. Just this week, the German central bank warned that the country will likely slip into a recession. In the UK, the future is at risk as the country continues to battle the European Union.
The pound was unchanged in the Asian session after a sharp rally during the American session. Investors have continued to worry as the risk of a no-deal Brexit have risen. In the latest turn of events, the European Union rejected the set of conditions that Boris Johnson has demanded. Yesterday, Donald Tusk, the president of the European Council criticized Johnson for not offering a realistic alternative to avoid a hard border in Ireland. Today, investors will be paying close attention to the meeting between Johnson and Merkel. He will also meet with Macron tomorrow. An EU official quoted by the Financial Times said that:
The fact is we still need a legally operative mechanism that will ensure an open border between Northern Ireland and the Republic of Ireland while safeguarding the integrity of the EU single market. The backstop does that, and Johnson hasn’t set out an alternative to it.
Today, the market will receive the CPI data from Canada. Investors expect the headline CPI for July to decline to 1.7% from the previous 2.0%. On a MoM basis, they expect the CPI to increase to 0.1% from the previous decline of -0.2%. The core CPI, which excludes volatile products, is expected to decline slightly from 2.0% to 1.8%. This data comes at a time when the Bank of Canada (BoC) is considering whether to cut rates this year or leave them unchanged. Meanwhile, from the United States, investors will receive the existing home sales data. The numbers are expected to increase to 5.39 million from the previous 5.27 million.
The EUR/USD pair is currently trading at 1.1095, which appears to be a strong resistance level on the hourly chart. In the past two days, the pair has been trading between the support and resistance level of 1.1065 and 1.1113. As a result of this consolidation, the current price is along the 14-day and 28-day moving averages and the price is between the 23.6% and 38.2% Fibonacci Retracement level. The pair could remain at these levels ahead of the FOMC and ECB minutes, which are expected tomorrow.
The GBP/USD pair rose to a high of 1.2180 in the American session. In the Asian session today, the pair was unchanged as traders waited for the important meeting between Boris Johnson and Angela Merkel. The pair is now trading at 1.2155, which is between the upper and middle lines of the Bollinger Bands. The pair has been relatively volatile as shown on the Average True Range (ATR) indicator below. The accumulation and distribution indicator have been on an upward trend too. The pair will likely continue being this volatile as traders watch out for new developments on Brexit.
Yesterday, the USD/CAD pair reached a high of 1.3345, which was the highest level since June 20. The pair has been on an upward trend after establishing a double bottom on July 12 and July 17. On the four-hour chart below, the pair is slightly above the 14-day and 28-day moving averages while the RSI has remained between the overbought and oversold extremes. The ADX is currently at 16, which is a sign that the strength of the upward trend is easing.