22.10.201910:03 Forex Analysis & Reviews: Brexit is the only serious driver of the day. Euro loses momentum while the pound still hopes for the continuation of growth

Mixed global stock indices are trading on conflicting news. The US markets closed in positive territory on reports of China's readiness to continue trade negotiations, however, oil and gold were practically without movement.

The main problem is the lack of clarity on the Fed's plans. Throughout the years that have passed since the 2008/09 crisis, treasures yields have been above the Fed rate, and since the start of the rate growth cycle in December 2015, it should have gone up. Indeed, 2-year-old papers began to gain profitability, while the dynamics of 10-year-olds remained virtually unchanged. By the beginning of 2019, a strange situation arose - despite the fact that the Fed continued to tighten growth, yields went down.

In fact, the actions of the Fed at the current stage are not ahead, but late, that is, for the first time in the history of the Fed, it is not so much generating market expectations as it is forced to respond to changes. This may mean that even improving financial conditions after two declines is clearly not enough to keep the US economy from sliding into a recession, and a large-scale outflow of liquidity is just a temporary measure.

In addition, the markets also need to understand how the beginning of the reporting season for the 3rd quarter will affect stock indices. So far, the results are above forecasts, which ultimately supports the stock market, but most giants have not yet published their reports, and fears of a decline in profits for the quarter remain dominant.

EUR/USD

No significant events are expected in the eurozone until Thursday, so the euro is likely to follow the pound, based on the development of the situation on Brexit. At the same time, the preliminary PMI results for October will be published immediately before the ECB meeting, but they are unlikely to have a strong impact on the quotes, as markets have already set the ECB to start implementing its ambitious plans in November, and the last meeting led by Mario Draghi will be a passing one.

Only serious disunity in the ECB, which may result in nervous comments from the board of governors after the meeting, may cause concerns. These fears may restrain the growth of the euro in the next couple of days. In general, the momentum on the euro is noticeably weaker than that of the pound, and therefore, the continuation of growth is in question.

Resistance, in turn, can be considered at the level of 1.1207. This is 61.8% of the last downward wave, while support is the recent low of 1.1108, leaving the range in the coming days is unlikely.

GBP/USD

Another Brexit bill has been submitted to the British Parliament, based on agreements reached with the EU on October 17. This last chance to exit the EU on October 31 will probably be realized today, when the third reading takes place.

Thus, the greatest danger is the possible amendments. They may be so unacceptable for the Cabinet that he himself will withdraw his bill. In any case, the pound guaranteed a nervous day, and volatility can be high.

The time factor is affecting more and more and everyone needs certainty - investments are falling, the business climate is getting worse, PMI indices are falling below 50p, and the economy is facing a recession.

The Bank of England cannot take any monetary steps, or even announce the possibility of such steps, until there is clarity on the prospects for Britain's EU membership. Time is running out, and at the moment, wage growth rates can still be considered sufficient to maintain an acceptable level of inflation. However, in the face of a shrinking economy, the labor market will inevitably go down, dragging inflation along with it.

Now, the pound is focused on the imminent Brexit. The markets assume that the economy of UK will respond with growth to the removal of restrictions, but this approach is largely hypothetical. In any case, today, if a positive vote is announced, the pound will be able to sharply go up and gain a foothold above 1.30, while this is the most likely scenario. The momentum is still strong, however, any delay can trigger a pullback to 1.2810 / 30.