Pound traders are awaiting news on the EU vote on an agreement to extend Brexit until January 31, 2020, with the possibility for the UK to leave earlier if the deal is ratified in parliament.
GBPUSD
Last week, the pound took a pause, after a small downward correction, which was caused by the growing likelihood of a general election in the UK. On Friday, it became known that the vote on the extension of the release date was postponed to the beginning of this week. Despite objections raised by the French government, the document, which will be agreed today and circulated to member states, suggests that the EU will agree to the UK's request for a further delay. The document will likely enshrine the possibility of leaving the EU ahead of schedule, but on the condition that parliament approves the proposed Brexit agreement.
This is good news for buyers of the pound, as it allows British Prime Minister Boris Johnson to continue the pressure on parliament and implement his plan in the next few weeks. Let me remind you that the main principled position of lawmakers, who approved the deal last Monday only partially, was the need for a more detailed study of the agreement, which takes time. Boris Johnson managed to find a compromise again.
However, there is also a fairly high probability that while the agreement is not officially approved, the conditions may change, which is sought by the opposition together with the Irish DUP party.
From all this, it follows that the parliament will be given about two weeks to read and consider the agreement, and the potential date of the UK's exit from the EU will shift from October 31 to November 15. The EU Declaration attached to the draft agreement also stipulates that the bloc will not renegotiate the withdrawal agreement. It is also said that the UK is "obliged" to nominate a candidate for the European Commission, but earlier the Prime Minister said he would not do so.
Also today, it became known about the active actions and meetings held this weekend by the President of the European Council Donald Tusk with EU leaders. The main task was to find common views on the agreement to grant the UK a reprieve.
At the weekend, French President Emmanuel Macron held talks with official London, during which disagreements related to the granting of a reprieve were discussed. Let me remind you that only one France was against the extension of the exit period. It is known from sources that Boris Johnson managed to convince Paris to withdraw its objections to the new delay.
As for the technical picture of GBPUSD, it remained unchanged. An unsuccessful attempt by bulls to return the resistance of 1.2860 may lead to the formation of another downward wave in the trading instrument with the update of the lows of 1.2760 and 1.2600. If the bulls manage to overcome the level of 1.2860 today, we can expect purchases and an update of the resistance of 1.2950.
EURUSD
Data released on Friday on the US economy did not harm the US dollar much. The University of Michigan report said inflation expectations for the 12 months ahead in October 2019 fell to 2.5% from 2.8% the previous month, while inflation expectations for the five years ahead fell to 2.3% from 2.4% in September.
The University of Michigan consumer sentiment index also fell to 95.5 points in October, from 96.0 points in September this year, which is directly related to the slowdown in global economic growth and the persistence of US trade differences with China.
Another report on the growth of the US budget deficit in the fiscal year 2019 did not surprise traders and was generally ignored. According to the US Treasury, the fiscal year ended on September 30, which led to an increase in the US budget deficit to $984 billion. By the way, this is a 26% increase compared to last year, when the deficit amounted to $779 billion.
The main growth is directly related to an increase in government spending, and the growth in tax revenues could only partially offset such a large gap. Tax revenues rose by 4% to $3.4 trillion, while spending rose by 8% to $4.4 trillion.
Ignored the US dollar and the news that the Federal Reserve Bank of New York on Friday made an injection of liquidity in the amount of 77.343 billion US dollars. This was done through a repo operation against collateral in the form of treasury bonds for $67.593 billion and mortgage-backed securities in the amount of $9.75 billion.
As for the technical picture of the EURUSD pair, the further direction will depend on the outcome of negotiations in the EU on the postponement. In a positive scenario, buyers of risky assets can return to the market, and a break of the resistance of 1.1100 will lead to a larger upward trend in the area of highs 1.1150 and 1.1210.