- EUR/GBP has dropped in despite EUR/USD's strong rally as the pound steals the show, rocketing to a high of 1.3050 vs the greenback, (UK jobs data was solid).
- The greenback is suffering a hangover from the Asian session highs and has fallen below the 97 handle in the DXY with US yields also plummeting.
Brexit has been on the backburner of late but is coming back to the fore this week as the 27th Feb vote approaches, with important changes of tone, and reports of new plans (and delays of existing plans), suggesting that the risks are building toward a meaningful Brexit breakthrough in the coming days.
First of all, the European economy is the laggard and data reported earlier today confirmed that with Eurozone December construction output -0.4% vs -0.1% m/m prior and the Germany February ZEW survey current situation 15.0 vs 20.0 expected. Meanwhile, in the UK employment, unemployment, and wage growth was impressive by historical standards, especially in light of Brexit, and while it took some time to feed through into the price, it is a solid foundation, especially coupled with the recent rebound in retail sales for January.
Brexit latest:
There have been a number of Brexit related headlines feeding through. We had the Former European Commission president saying most likely scenario is UK will delay Brexit while the European Commission reiterated that they will not accept time limit to the backstop nor reopen withdrawal agreement - which begs the questions as to why UK PM May and Juncker will meet tomorrow? However, a UK PM spokesman, James Slack, said that the meeting tomorrow is 'significant' - (Scheduled to take place at 1730 GMT).
PM spokesman says here is why:
- The Priminsiter is seeking legally-binding changes to the backstop in meeting with Juncker and that the government is still working on alternative arrangements for backstop while looking to reopen the withdrawal agreement.
- Cabinet has discussed no-deal Brexit planning.
It looks like an Article 50 extension is nearly inevitable and that is where sterling is taking its cues from again.
"It looks like May will aim to have a deal agreed by mid-March (especially if the Cooper/Boles amendment, which would extend the Brexit deadline if there is no deal, is put to a vote and passes next week," analysts at TD Securities argued.
"It's hard to completely rule out Theresa May taking everything down to the wire, with dramatic last-minute negotiations at the 21-22 March EU Leaders Summit, and a vote in Parliament shortly thereafter-- and just days before the UK is scheduled to leave the EU," the analysts explained adding:
"In this case, she would present the vote as "my deal or crash out", and/or "my deal or a prolonged extension to Article 50", both options that many of her MPs would have difficulty accepting. Remaining vague on the options to the last minute plays to her advantage, because if her deal is rejected, May herself can ultimately decide on Plan B: neither option requires Parliamentary approval. And there is solid evidence out there that she is seriously contemplating both No Deal and a long Article 50 extension."
EUR/GBP levels
Analysts at Commerzbank, on the technical front, had noted that EUR/GBP slowly inched higher last week but failed ahead of the 0.8862/81 (55 and 200-day ma):
"Only failure at 0.8620/18 would suggest an ongoing weakness to the base of the channel at 0.8541 and potentially the 200-week ma at 0.8365. We have no strong bias. The market is expected to struggle on rallies to the 200-day ma at .8863, and only above here allows for a move to the 55-day ma at 0.8884 and this, together with the October 0.8941 high, are expected to contain the topside."
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD stabilizes near 1.0800 as trading action turns subdued
EUR/USD holds steady near 1.0800 on Thursday and remains on track to end the day in negative territory following upbeat macroeconomic data releases from the US. The action in financial markets turn subdued as trading volumes thin out heading into Easter holiday.
GBP/USD extends sideways grind above 1.2600
GBP/USD fluctuates in a narrow channel above 1.2600 on Thursday. The better-than-expected Initial Jobless Claims data from the US and the upward revision to the Q4 GDP growth help the USD stay resilient against its rivals and limits the pair's upside.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays near 4.2% after upbeat US data and makes it difficult for XAU/USD to gather further bullish momentum.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.