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15.09.2020 10:17 AM
GBP/USD and EUR/USD: Controversial UK bill passes the second reading. Meanwhile, euro rallies due to good EU statistics.

The controversial UK bill, at which British Prime Minister Boris Johnson plans to cancel a number of provisions in the Brexit agreement, has passed the second reading, having a ratio of votes at 340 against 263. Nonetheless, it was reported that quite many parliamentarians and experts disagree with the bill, so the pound rose slightly in the market yesterday.

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The bill is now set to be discussed on the committee stage, after which the final vote will take place. Then, it will be passed to the House of Lords, before being handed to Queen Elizabeth II for signature to become law. However, such will most likely put an end to trade relations between the EU and the UK, which will completely cancel out all efforts over several years.

Meanwhile, the Bank of England will hold a meeting this Thursday, but it is unlikely to have a strong impact on the market because of the issues related to Brexit. Nonetheless, during the meeting, the bank is expected to maintain its current monetary policy, especially since the rate of recovery in the UK economy is satisfactory.

With regards to GBP / USD, it is hardly possible to focus on any levels, since any decision on the draft law or a negative reaction from the EU through legal measures may lead to a new round of collapse in the British pound. A breakout from the support level of 1.2770 may cause a removal of buy stop orders, which will result in movement towards lows 1.2720 and 1.2645. But if the bill is stalled, a surge of long positions may occur, and this could lead in a breakout from 1.2920, and then rise to new highs around 1.2990 and 1.3110.

EUR / USD

Euro rallied ahead of the important Fed meeting, largely because traders opened a bunch of long positions on the grounds of good statistics on the EU economy. The reports that were released yesterday pointed to a very good pace of recovery after the coronavirus pandemic, which confirms the earlier statements of ECB chairman Christine Lagarde on the account of a more promising future in the eurozone.

One of the data was the improving industrial production, which continues to rise since early summer. It came out 4.1% for July, but compared to the same period last year, that is, July 2019, the indicator fell by 7.7%.

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Rumors of an increase in ECB bond purchases also circulated in the market yesterday. It will be done in order to support the economy amid weak inflation and fading recovery momentum, and the volume is set to rise from € 15 billion to € 35 billion per week. However, it is unlikely to affect the European currency significantly, since the European Central Bank will clearly not go beyond the established framework.

Another report, which was generally ignored by the market, was on inflation expectations, which, according to the New York Fed, saw a decrease in pessimism about the financial situation of households. Expectations of a rise in house prices have also increased, and the risks of non-payment of debt obligations have decreased.

With regards to the EUR / USD, the preconditions for further growth remain, but for this, the bulls need consolidate the quote above the level of the 19th figure. Such will make it easier for the euro to reach the 20th figure, around the level of 1.2060 in particular. However, if the bulls fail to show activity around 1.1905, the euro will return to 1.1855, and then move towards larger lows at 1.1800 and 1.1755.

Jakub Novak,
Analytical expert of InstaForex
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