Daily Brexit update: Sterling falls back into line

Daily Brexit update: Sterling falls back into line

Sterling’s advance a day ago evaporated on Tuesday, a week before Prime Minister Theresa May’s Brexit bill faces almost certain defeat in the House of Commons. In the closing stretch of the U.S. session, sterling traded against the dollar was 60 pips lower on the day having briefly notched a high of $1.2796 earlier, 10 pips above Monday’s. The lack of follow-through underscores the disconnect between any pound strength and aspects of Britain’s tortuous EU withdrawal. The ebb and flow of the dollar which is in the throes of a deep correction linked to a newly accommodative Federal Reserve, has contributed more sterling support than Brexit prospects. Speculation, like today’s Telegraph report, suggesting European officials were discussing a delay of the UK’s exit—swiftly batted down by Downing Street—are likely to continue to prop up into next week, and possibly beyond. However, as next Tuesday’s parliamentary vote draws nearer, crystalizing risks that Britain leaves the EU on 29th March with no deal, anxieties are highly likely to reboot sterling volatility.

How this affects our Brexit Top 10 markets:

GBP/USD: Tuesday’s reversal began in the early hours after a fearsome spike up to $1.2796. The surge hit a region marked by hourly closes around $1.28 on 31st December, strongly suggesting existing liquidity (AKA stops) linger in the area that is now acting as resistance. The downdraft took GBP/USD a full 90 pips lower before bids emerged at $1.2706 support. The pair looks heavy and almost certain to breach the day’s range within hours. It should then head towards the next consolidation zone, close to $1.26.

GBP/JPY: The yen rebounds with somewhat greater magnitude against the pound than against the dollar. A break of Monday’s low of ¥137.6 will set direction for a decline that could extend to 3rd January’s flash-crash two-year bottom of ¥132.28.

EUR/USD: The euro’s dollar-backed rally was definitively nixed by a surprise plunge in German manufacturing output. Minutes of the ECB’s latest policy meeting will be out on Thursday. The struggle near 1.1500, falling daily RSI and the rising wedge pattern on daily charts suggest bulls still don't have full control.

EUR/GBP: Against sterling, though, the euro is favoured, up 25 pips late in Europe at 90p, from a high of 90.06p. With tough resistance just overhead at 90.40p the euro is not quite ripe for stronger gains against sterling either.

UK 100: The FTSE is up 2% so far in 2019 as investors join global counterparts in a corrective rally with a less-threatening Federal Reserve stance at its root. As Britain’s reporting season hots up in coming days though, beginning with high-profile retailers, the benchmark index potentially faces a domestic drag.

Germany 30: Germany’s leading index even shrugged off poor economic data on the back of the global stock updraft, with possible assistance from the soft euro.

Lloyds: The heavyweight confirmed overall FTSE sentiment with a rise of 0.6%.

Barclays: With even greater sensitivity to the global rebound Barclays outpaced its big rival with a 1.2% gain.

Shell: Oil stocks continue to consolidate rapid advances last week. Shell closed 0.3% lower.

BP: BP also edged down, losing 0.2%.

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