Quite the start to the week with all things Brexit taking centre stage, and a somewhat mixed bag for the US earnings season.

We saw a real rollercoaster for GBP as the UK Parliament first approved PM Boris Johnson’s Brexit plan, but then voted against his rushed timetable.

GBP rallied to 1.3000 and then fell to 1.2860 as the markets tried to digest what had happened and the potential impact. EUR also suffered slipping to 1.1120 against the USD and 120.40 against the JPY.

Wednesday is once again all about Brexit, although some mildly positive trade comments from China have risk sentiment turning positive early, despite poor earnings results from Caterpillar and Boeing.

To start the US day, EURUSD is at 1.1120, JPY 108.45 and GBPUSD at 1.2870. USDCAD sits at 1.3090 and AUDUSD 0.6845. XAUUSD is 1493.

Wednesday lacks any significant data releases so the focus will be on market-moving headlines. The first move comes in JPY crosses with EURJPY rallying from 120.45 up to 120.78 which was Tuesday’s real pivot level.

A rally in equity futures appears to be the catalyst. And so as they open the DJ puts on 100 points taking USDJPY to 108.66.

Most other currencies are subdued and barely move 10 pips either side of their opening NY levels.

Equities give up their earlier gains with the DJ falling to -20 at one point, but JPY crosses all continue higher with EURJPY poking its head back above 121.00 and USDJPY continuing to 108.70.

No bad news has GBP climbing slowly back to 1.2920 and EUR moves to 1.1130. Interesting that FX should keep a positive tone when equities didn’t.

And at the close, it’s equities that play catch up with all three major US indices showing modest gains. Given the negative sentiment at the end of the day, and some poor earnings results from big names to start Wednesday, the day’s moves caught the market by surprise.

Let’s see if the positive tone continues into the weekend.

One asset that did move today was crypto. Facebook’s Mark Zuckerberg was testifying to congress about their proposed Libra cryptocurrency. His opening remark was ‘I actually don’t know if Libra will work’.

Must admire his honesty!

Also, have to admire the drop in BTC from $8,000 to $7,300! The crypto market has been in the doldrums recently and desperately needs a major project to succeed.

As mentioned recently, several major payment partners had pulled out of the project and these comments are just another wound to an already vulnerable crypto market. The general negativity from congress certainly didn’t help either.

One of the more volatile currency pairs over the past couple of sessions has been EURJPY. Being a JPY cross, it’s susceptible to a reaction to changes in risk sentiment and can also move sharply on headlines such as we saw on Tuesday with the negative vote for the Brexit timetable.

If you look at the hourly chart attached you will see a strong upward trendline from October 9th, which we finally broke below yesterday.

Does that mean the trend is over? No. Not necessarily. We could just be taking a pause. Although we broke down through short-term support around 120.80, stronger support at 120.34 held and indeed since then, we have bounced convincingly back towards earlier highs.

While the 120.78 area is acting as a short-term pivot, the price action suggests we should now hold above there and potentially revisit the highs of earlier this week around 121.44 and beyond.

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David Hannigan

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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