Apart from the usual tantrums in Washington DC, today was all about Brexit. Yesterday they were close, but the DUP weren’t happy. Today brought the headline many were waiting for – “an agreement between the UK and EU on a Brexit deal”.
Cue euphoria. But then the caveats. It must be ratified by the UK parliament and the EU parliament. The DUP still don’t appear to be buying it and without their support, PM Boris Johnson will struggle to get the necessary votes in Westminster to have it ratified. More talks required.
So what did all this mean for FX and equities? Well, the initial reaction was very positive, taking GBPUSD up from 1.2800 to 1.2990.
EURUSD followed, rising to 1.1140 and even USDJPY got a boost to 108.93. But once the market had had time to digest the headlines it became obvious there is still a significant danger that the deal will not pass in Westminster.
GBP comes crashing lower to 1.2750 and USDJPY drops back to 108.55, despite equity markets remaining positive. The FTSE is up 0.6% with an hour to go in UK trading and US equities open higher, the DJ up 100 points initially.
The traditional risk-on currencies have all rallied with AUD up to 0.6833, NZD to 0.6346 and USDCAD down to 1.3145.
As the US day progresses, GBPUSD rises above 1.2800 to 1.2860 amid renewed optimism that the Brexit deal would win UK parliamentary approval.
US equities do however give up most of their gains as the usual battles and rhetoric in Washington continue. XAU is the main beneficiary of equities selling off, trading up to 1497.30.
As the day grinds to an end, US equities closely marginally higher with all three major indices showing gains of between 0.1% and 0.4%.
In FX AUD, NZD and CAD all end the day a couple of spreads of their highs. EURUSD finishes at 1.1125 and USDJPY 108.65. And the mighty pound takes a well-earned rest at 1.2885.
As you read this to start your Friday, keep one thing in mind about GBP. There is a session of Parliament over the weekend that will be used to either accept or reject the Brexit agreement agreed upon today. Either outcome could lead to a significant gap at the open on Monday morning in Asia, so please be aware.
Better-than-expected Australian employment data gave the Aussie a welcome boost rallying from 0.6751 to 0.6833. The overall positive risk environment continued a strong start to the US earnings season coupled with a Brexit agreement, certainly helped.
But if you look closely at the hourly chart you can see we have met resistance at or very close to a level I have mentioned many times – 0.6832.
Will this level stop a move in its tracks again or will it act as a pivot and accelerate the rally to higher levels? Plenty of ways to trade it from here!
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