Sterling seeks stability in face of
Brexit setback
The main
takeaway that is still dominating international headlines is the announcement
that UK Prime Minister Theresa May has spectacularly pulled the key Brexit vote
in Parliament just one day before it was scheduled.
The GBPUSD is
trading near its lowest levels since April 2017 in response to this unexpected
Brexit twist. If investors become more anxious that the United Kingdom is
falling into either a no-deal Brexit or even worse, a disorderly Brexit trap,
then a move to a 1.20’s low cannot be ruled out over the coming weeks. As the
week progresses markets will be keeping a very close eye on whether May has the
ability to renegotiate with Brussels in a bid to save the deal, if she will end
up facing a leadership challenge, or the possibility of a second Brexit
referendum. With the chaos in Westminster raising the likelihood of a no-deal
Brexit scenario, the British Pound is in trouble.
Focusing on the
technical picture, the GBPUSD is undeniably bearish on the daily and weekly
charts. The sharp breakdown below 1.2700 has placed bears in a firm position of
control with 1.2500 acting as the next significant point of interest.
Regional and emerging markets set to
follow global indices
The theme of
international political events overshadowing fluctuations in global markets is
going to run the risk of regional and emerging markets following the trajectory
of their global counterparts.
Renewed
uncertainty over what exactly is going to happen next with Brexit combined with
continued signs of political risk in France, alongside prolonged US-China trade
tensions represents the perfect combination of a risk-off cocktail for
investors.
All of these
factors are weighing on risk appetite, where investor attraction towards taking
on risk in their portfolio diminished early this week. Most major global
markets, emerging market currencies and commodities like Oil all suffered falls
on Monday, which is a broad indicator of risk aversion taking place.
Dollar buoyed by safe-haven demand
Market caution has sent investors sprinting to the Dollar which remains
the go-to currency in times of uncertainty.
The Dollar Index
is trading marginally above 97.10 as of writing and is likely to extend gains
on safe-haven flows. However, with expectations mounting over the Fed taking a
break on interest rates next year and soft economic data fanning concerns about
US economic growth, Dollar bulls may tire more quickly than anticipated. In
regards to the technical picture, the Dollar Index has the potential to hit
95.40 in the near term.
Commodity spotlight – Gold
Gold prices held
steady this morning on prospects of the Fed taking a break on raising rates next
year.
The outlook for
the yellow metal this week will primarily hang on the Dollar’s performance. It
will be a struggle for Gold prices to trade higher if risk aversion ends up
boosting the Greenback. In regards to the technical picture, prices remain in
an upward trend on the daily charts with support found at $1,240. Bulls have
the chance to attack $1,250.70 and beyond as long as $1,240 proves to be a
reliable support level.
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