Sterling was an easy target
for bearish investors after MPs voted against the Cooper amendment that would
have provided a safety net against a ‘no deal’ outcome. Although the passing of
the Brady amendment came as a win for Theresa May, this proposal was
immediately rejected by the European Union. With less than two months until the
official Brexit divorce date and Brussels warning that the backstop is “not
open for renegotiation”, the odds of an extension to Article 50 are rising.
While this scenario has the potential to support the Pound as investors
completely discount fears of a ‘no deal’ Brexit, the continued uncertainty will
most likely cloud the currency’s medium- to longer-term outlook.
Taking a look at the
technical picture, the GBPUSD is nursing its wounds today with prices trading
marginally below 1.3100 as of writing. Although the trajectory points to
further upside, Brexit developments have the ability to overshadow the
technicals. Bulls have the ability to push prices back towards 1.3220 as long
as 1.3000 proves to be reliable support. Alternatively, a breakdown and daily
close under the psychological 1.3000 level is likely to invite a decline
towards 1.2940.
Dollar waits on FOMC meeting
Across the Atlantic, much
attention will be directed towards the FOMC meeting this evening which is
expected to conclude with monetary policy being left unchanged.
Investors will be paying
extra attention towards the language in the policy statement to see whether the
Fed signals a pause in rate hikes. With the US government shutdown delaying the
release of important economic data and uncertainty over trade talks weighing on
sentiment, it may be tricky assessing how the US economy has performed.
Although the Dollar continues to benefit from safe-haven flows, buying
sentiment is seen taking a hit if the Fed sounds more dovish than expected.
Focusing on the technical
picture, the Dollar Index is under pressure on the daily charts. Sustained
weakness below 96.00 is likely to encourage a decline back towards 95.50 and
95.28, respectively.
Commodity spotlight – Gold
It has been an incredibly
positive trading week for Gold thus far thanks to market caution and investors
clearly avoiding riskier assets in favour of safe-haven investments.
For as long as US-China
trade tensions, concerns over slowing global growth and Brexit drama continue
to weigh on risk appetite, Gold is seen shining throughout the trading week.
The zero-yielding metal is poised to receive a welcome boost if the Federal
Reserve adopts a dovish tone. With the fundamentals driving Gold marrying the
technical, we see vast upside potential. The daily close above $1,308 is seen
opening a path towards $1,316 and $1,324, respectively.
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