Sterling a tad softer to start the new week, what is priced in currently?
Cable down by 0.2% close to 1.2160 currently
It's a similar thing for EUR/GBP as the pair is up by ~0.2% close to 0.9000 with the pound a tiny bit softer to start the European morning. Cable moved down to a low of 1.2253 but is contesting resistance levels near 1.2253-61 currently.
So, what is priced in at the moment in terms of Brexit risks?
I would argue that current events - Brexit delay bill turning into law and another election motion being rejected - are the baseline market expectations coming into the new week so any changes to that will be the one to watch out for in the pound.
However, in terms of any further upside potential from avoiding a no-deal Brexit, that now depends on the hands of the European Union and/or if Boris Johnson will throw any more curve balls ahead of 19 October.
As such, I don't see markets getting too optimistic and cable to sustain a rise towards 1.25 if the current developments continue to be the status quo in the coming weeks.
In that lieu, a key level to eye this week will be the key hourly moving averages. The 100-hour MA (red line) and 200-hour MA (blue line) sit at 1.2221 and 1.2193 respectively and if sellers can start to look towards challenging those levels, we may see downside risks start to creep back into cable in the short-term.
That said, I would expect more choppy price action as the headlines are likely to be few and far between from hereon with Boris Johnson set to prorogue parliament some time during the week and the European Council meeting only taking place on 17-18 October.
At this stage, I'd argue that any upside break towards 1.25 are value for shorts if there is no change to the current Brexit picture while a downside move towards 1.20 should see profit-taking and short covering ahead of October.
As such, price trading at 1.2260 is pretty much a "caught in the middle" situation with upside looking limited but sellers still lacking control (price still above key hourly moving averages) for the time being.