10:38, 19 March

Rallies Back Above Support at 1.13 as Brexit Looms

In the last week or so the EURUSD has rallied well and return back above the current key level of 1.13 after dropping sharply to an 18 month low around 1.1175. It performed a similar rally several weeks ago moving back above the key level of 1.13 after having dropped to a then three month low below 1.1250, which moved it to a three week high above 1.14. In early February the EURUSD was sold off after running into resistance at the other key level of 1.15, as it maintains it trading range between 1.13 and 1.15. 
On numerous occasions in the last few months the EURUSD has enjoyed rock solid support from the key 1.13 level and will be looking to do so again now that it has been able to get above this level.

For the last few months now the EURUSD has been content to trade within a narrow range enjoying support from 1.13 and meeting resistance at the 1.15 level. It is interesting to note that its recent excursion above 1.15 didn’t last long as it was quickly sold down at those three month highs. The 1.13 level has also become quite significant of late, and even though it has fallen through this level a few times, it was quickly pushed higher through strong buying which will provide some confidence that the 1.13 level will provide strong support should the EURUSD attempt to decline again.

After dropping through the 1.13 level near mid-November, the EURUSD did well to rally higher from its lowest levels in 16 months back up towards 1.15 before easing in the week afterwards. Likewise the 1.15 level has become key of late providing stiff resistance and looming above ready to push prices lower. Towards the end of October the EURUSD did well to surge higher off support at the key 1.13 level after having fallen strongly over the last few weeks from above 1.16. These instances again reinforce how significant the current key levels are.

With the United Kingdom due to leave the European Union (EU) on 29th March, however given that there is no support for Prime Minister Theresa May’s deal with the rest of the EU, it is likely that the British PM will request more time to finalise a compromise.  Currently the 27 members of the EU are considering whether to grant the U.K. an extension to its European exit.  This Thursday the European heads of state are due to meet in Brussels to discuss a potential delay to Article 50, which is the legal framework by which an EU country can exit the union.  It is up to the 27 heads of state to decide, unanimously, whether such delay can be granted.  Last Thursday the European Council President Donald Tusk said that he would “appeal to the EU27 to be open to a long extension, if the U.K. finds it necessary to rethink its Brexit strategy.”  There is little doubt that some members of the EU are pushing for a long extension, to give the United Kingdom more time to navigate a way out of its own political mess.  A long extension may result in closer ties between the UK and EU post departure.