GBPCHF: Safe-haven flows & UK-EU trade talks

GBPCHF, Daily and H4

Sterling is underperforming once again, showing a 0.8% loss versus the Euro, which is currently registering as the strongest of the main currencies on the day so far.

This has put EURGBP at 17-day highs, Cable has posted a 1-week low at 1.2870, returning focus on the 3-month low seen last week at 1.2849. On the year-to-date, the Pound is showing an averaged loss of 1.7% against the Dollar, Euro and Yen.

Today however, my attention turned to GBPCHF. Looking at the Daily charts initially, we have seen GBPCHF setting a strong downward move around -0.78%, at November 2019 area, with the pair testing also the key 1.2490 level which is the midpoint of the upleg seen in the second half of 2019.

Looking at the weekly chart, the asset entered this week the Ichimoku cloud, while in the daily chart is slipping below the cloud. Sellers re-took the control the past 3 hours around  1.2575. The price was also capped underneath the 200-day simple moving average (SMA), at 1.2506, which is in line with a turn into a negative outlook.

Daily and Weekly Momentum oscillators are falling in line with the bigger bearish picture reflected by all SMAs. The MACD has turned negative, while in the 4H chart continues to decline into the negative territory. The RSI in all three time frames -already in bearish regions- heads back down. Noteworthy, TenkanSen and KijunSen are decidedly below the Cloud, while the Chikou fell below the price, both indicating that the asset’s trend is negative and could be heading lower.

Having in mind that the bears have already penetrated out of the Ichimoku cloud, and the 5-month area, the next Support that could be tested is at the 1.2450.  If the sell-off continues next week, with a move below the latter, the 1.23 area comes in the spotlight (161.8% FE and 61.8% from 2019 rally).

Summarizing, a sustained move below 200-day SMA and the 1.2490 (50% Fib. level since 2019 rally) would confirm the short- and medium-term bearish bias. However, a shift back above 1.2680-1.2700 could turn the stance back to neutral.

Last, from the fundamental perspective, the publishing of the UK’s mandate for negotiating a new trade deal with the EU has been also the latest selling catalyst, othen than the safe haven flow into Swissy from COVID-19 panic.

The document sent an uncompromising message, emphasizing that the UK will not sign up to EU rules and regulations, that there will be no extension of the Brexit transition phase beyond the end of 2020, and that preparations to leave the EU’s single market and customs union without a new trade deal will commence in June if it is clear that an accord with the Union cannot be reached by then. The EU’s mandate for the upcoming negotiations was softer, saying that the adherence of EU standards would be “a reference point” in negotiations, though given the UK government’s stance and limited time frame available, it’s hard not to conclude that nothing more than a relatively narrow goods-only trade will be feasible. That means, come January 1st next year, a high proportion of UK trade (including all services) will shift to less favourable WTO terms. Bear in mind that when the UK leaves the Brexit transition period at the end of 2020, it will not just be leaving the EU’s single market and customs union, but also participation in the 40 free trade deals the EU has around the world. Replacing these deals with new bilateral agreements will take years.

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Andria Pichidi

Market Analyst

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