Tuesday starts with the same old themes on the table. Brexit negotiations continue with one Irish official stating that “negotiating teams made progress but slow.”

The same official also mentioned that “talks could move beyond this week’s summit to next week”. This was enough to initially take GBPUSD up to 1.2697.

But comments from BoE Governor Mark Carney that rates could be cut to just above zero, brought GBPUSD back down to 1.2625. Every GBP comment right now is garnering a reaction.

EURUSD spent much of the European session heading lower and broke 1.1000 down to a low of 1.0992 as German officials cut their GDP estimates for 2020 from 1.5% to 1%.

The US day sees the beginning of a new earnings season. Positive results from United Healthcare and JP Morgan give US equity futures a boost.

As Wall Street opens, the DJ is +150 and USDJPY is back up towards 108.50. EURUSD sits just below 1.1000 and GBPUSD is back to 1.2650.

AUD and NZD have both weakened overnight, more a case of USD strength than negative risk sentiment. They begin the US day at 0.6745 and 0.6260 respectively. Then comes a big headline – EU and UK negotiators closing in on draft Brexit deal.

EUR jumps to 1.1030 and GBP to 1.2800. The DJ is now +250. The Brexit draft is going to be dependent on getting approval from the Democratic Unionist Party, so all eyes on them now. Next comes a comment from a senior EU diplomat stating that reports of an imminent Brexit deal are ‘way too premature’.

GBPUSD heads back down to 1.2720. Then we get a comment from the aforementioned DUP that more work needs to be done. Not a negative really, so back up we go to 1.2780 (I hope you’re keeping up with all of this!). EUR consolidates around 1.1035 and USDJPY continues to probe the highs of the day, just shy of 108.90, despite equities being off their best levels by the close.

The DJ finishes the day +237 and XAU just off its lows at 1481. A day of positives from both Brexit and US earnings. Can it be sustained? We will see.

Not a cross I mention too often but when you have positives in the UK and a generally positive risk environment, GBPJPY is a pair to look at.

This past week has seen a rally of over 850 points! As you can see from the daily chart, we have a double bottom in place around 126.60 but still a distance to go (need 145 to break) before we break the downtrend from early 2018.

As we know, GBP can get some explosive moves especially during this critical ‘Brexit period’. Look out for more volatility and wild moves ahead!

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David Hannigan
Author

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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