• All eyes on the European Central Bank's meeting and the Brexit saga.
  • Pound firmer on the past week’s developments have reduced the risk of a no-deal Brexit on 31 October.

EUR/GBP corrected last week having fallen from the 0.93 handle to just below 0.8950 as the pound attracts a turn-around bid whereby the markets figure, with respect to Brexit, that the proverbial can is being kicked down the road. EUR/GBP is currently trading at 0.8973 in the opening session as markets look ahead to the European Central Bank's meeting this month.

The ECB will be acting as president Draghi explained in his Sintra speech back in June and at the ECB meeting in July. Analysts at TD Securities explained that they are on the dovish side of expectations, looking for a 20bps rate cut and €40bn/month of QE. "We're fairly comfortable with our downside view on rates, though less certain on QE given the scale of push-back from some of the ECB hawks recently."

Will EU accept a new Brexit extension?

Meanwhile, on the Brexit front, turmoil has continued over the weekend with further resignations in Amber Rudd walking out as work and pensions secretary in protest against the expulsion of 21 conservative MPs. "We expect the UK will call a snap election early next week. This requires that Boris Johnson accepts Jeremy Corbyn’s request for the election to be held after 31 October and would imply an extension of the current Brexit deadline, assuming the EU accepts a new extension. The past week’s developments have reduced the risk of a no-deal Brexit on 31 October. However, I would still assign a substantial probability of a no-deal Brexit at a later stage, where the election result will be essential for the Brexit end game," Thomas Harr, Global Head of FI&C Research at Danske bank explained.

EUR/GBP levels

EUR/GBP is correcting from the recent swing lows around 0.8950 with the 0.90 handle on the radar. On the downside, the June 20 low at 0.8872 and the 200-day moving average guard the 61.8% Fibonacci retracement of the May-to-August advance down at 0.8794.

  • Japanese GDP SA (QoQ) Q2 F: 0.3% (expected (exp) 0.3%; previous (prev) 0.4%).
  • GDP Annualised SA (QoQ) Q2 F: 1.3% (1.3%; prev 1.8%).

Japanese Gross Domestic Product came in meeting expectations.

  • Japanese GDP SA (QoQ) Q2 F: 0.3% (expected (exp) 0.3%; previous (prev) 0.4%)
  • GDP Annualised SA (QoQ) Q2 F: 1.3% (1.3%; prev 1.8%)
  • GDP Nominal SA (QoQ) Q2 F: 0.3% (exp 0.3%; prev 0.4%)
  • GDP Private Consumption (QoQ) Q2 F: 0.6% (exp 0.6%; prev 0.6%)
  • GDP Business Spending (QoQ) Q2 F: 0.2% (exp 0.7%; prev 1.5%)

About the Gross Domestic Product

The Gross Domestic Product released by the Cabinet Office shows the monetary value of all the goods, services and structures produced in Japan within a given period of time. GDP is a gross measure of market activity because it indicates the pace at which the Japanese economy is growing or decreasing. A high reading or a better than expected number is seen as positive for the JPY, while a low reading is negative.

  • GBP/JPY stays positive as Japan’s Q2 GDP data matched downbeat forecasts.
  • The Brexit drama keeps occupying the front-seat as the UK PM refrains from accepting the defeat.
  • UK data and political headlines will be followed for fresh impulse.

GBP/JPY remains firm after Japan’s second quarter (Q2) Gross Domestic Product (GDP) data as it takes bids to 131.37 amid initial Asian morning on Monday.

Japan’s Q2 GDP matched market consensus of 0.3% versus 0.4% preliminary reading and 0.1% prior on a QoQ basis while meeting 0.4% prior on the YoY format. Further, the GDP Annualized also met expectations of 1.3% growth against 1.4% earlier readout. Other data releases showed July month Trade Balance – BOP Basis declning to ¥-74.5B from ¥759.3B whereas non-seasonally adjusted Current Account for July lagged below ¥2,083.2B forecast to ¥1999.9B.

Despite witnessing multiple defeats at the House of Commons, the UK Telegraph reports that the United Kingdom (UK) Prime Minister (PM) Boris Johnson is seeking legal plans to block the Brexit extension. However, recent resignation from top Tories, including Jo Johnson and Amber Rudd, pushes him towards Dublin, as per The Guardian.

The British policymakers are planning to call emergency debate to challenge the PM Johnson’s anticipated efforts to block the Brexit extension while also turning previous motions concerning no-deal Brexit and no snap elections into law.

It should also be noted that France is expected to use its veto power to stop the EU from allowing any more Brexit extension to the UK policymakers.

Having witnessed a downbeat reading of Japan’s GDP, Britain’s monthly GDP and Manufacturing Production will decorate the economic calendar for now.

Technical Analysis

The 50-day simple moving average (DMA), at 131.65 now, limits the pair’s near-term upside, a break of which can propel prices to July 18 low surrounding 133.85 and then to 135.66/68 area including 100-DMA and July 25 top. Meanwhile, August 22 high close to 130.70 and 130.00 round-figure seem nearby strong supports.