GBP/NZD sellers came out of the woodwork, breaking a major support area. Is there more room to run or is a bounce ahead?
Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on EUR/USD ahead of the ECB monetary policy statement, so be sure to check that out to see if there is still a potential play!
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Fresh Market Headlines & Economic Data:
Stocks fall as unemployment data disappoints, traders eye stimulus talks
Weekly U.S. jobless claims increased by 853,000 last week vs. the Dow Jones estimate of 730,000.
U.S. Inflation Measure Rose by More Than Forecast in November
ECB Boosts Crisis Stimulus With Caveat on Not Using It All Up
In October 2020, French manufacturing output slowed down to +0.5% vs +2.3% in September
UK and EU extend Brexit talks to Sunday
UK GDP growth slows to six-month low as COVID hits hospitality
U.K. Housing Market Loses Momentum With Unemployment on the Rise
U.K. manufacturing rose by 1.7% m/m in October
Upcoming Potential Catalysts on the Economic Calendar
Bank of Canada Beaudry speech at 6:30 pm GMT
U.S. Federal Budget Balance at 7:00 pm GMT
New Zealand Manufacturing Index at 9:30 pm GMT
New Zealand Food prices at 9:45 pm GMT
What to Watch: GBP/NZD
On the one hour chart above of GBP/AUD, we can see the pair taking a dive on the session, likely on the big sell off in Sterling as the odds of a no-deal Brexit continue to rise (No-Deal Brexit More Likely After Dinner Fails, Officials Say). The pair move almost double its daily ATR (around 180 pips) on the session, breaking below a rising ‘lows’ pattern and a major support area around the 1.8850 minor psychological level.
As mentioned in yesterday’s Daily Watchlist post on GBP/AUD, the Brexit outcome is highly uncertain with a potential scenarios ranging from no-deal, to deal, or to extend the talks. Right now, “no-deal” is being priced in but that could change quickly.
If you’re in the “no-deal” camp, this breakdown in price action may be for you, but after a nearly 2x daily ATR move, a bounce might be right around the corner, especially with stochastic signaling potentially oversold conditions short-term.
It may be a good idea to wait for a bounce back up to the broken support area (between 1.8850 – 1.8900) before considering a short position. But if you want to be a little more aggressive, considering scaling into a short position, starting with nibbler positions near market up to the broken support area.
For the GBP/NZD bulls who expect a deal to come soon (potentially this weekend?), scaling into a long position at market down to the 1.8600 handle makes sense short-term, but given the drivers and price action, this is a highly risky move. If you’re looking play it, keep the position size small and be ready to react if the “no-deal” scenario does play out.