The British pound suffered severe losses ahead of the beginning of U.K.’s withdrawal of the European Union today. On the other hand, the positive macro data from U.S. boosted heavily the U.S. dollar. GBP/USD locked our target at 1.2470 and plunged further to 1.2375 so far.
Sterling Tumbled as Brexit Officially Begins
The sterling was the worst performed currency of the day on Tuesday as Brexit negotiations begin today and U.K. is headed into the unknown. The British pound fell to an eight-day low against the U.S. dollar, more than 1.20% lower since Tuesday’s opening level. Against, the Japanese yen, the pound dropped 0.84% to two-and-a-half-month low. U.K. Prime Minister Theresa May will formally paperwork Britain’s vote to leave the European Unionand each component that would be under discussion will be closely eyed by investors.
In terms of the economy, the BoE MPC member Ian McCafferty who voted for a rate hike in the last policy meeting, during his speech on Tuesday, stated that he does not know if he would vote for a rate hike again in the next policy meeting. The policymakers will probably keep a wait-and-see stance in the next policy meetings to gauge market confidence and have some first signs whether Theresa May will be able to reach deals with the European Union representatives, as she has scheduled. Brexit details will be under the microscope in the next months and will have a direct impact on the domestic currency.
GBP/USD – Technical Outlook
It is going to be an important day for sterling with the begin of Brexit negotiations. TheGBP/USD pair edged sharply lower ahead of the triggering of article 50 and plunged more than 1.2% since yesterday. The pair hit our suggested target at 1.2470 (see technical analysis here: https://bit.ly/2otjA8B) and slipped lower meeting the 50 and 100 daily SMAs and 200-SMA on the 4-hour chart, near the 1.2375 price level. The aggressive run to the downside started from the strong rebound on the 1.2615 resistance barrier which overlaps with the 200-daily SMA. The next level to watch is 1.2330 or even more the 1.2240 level.
Technical indicators on the 4-hour chart are biased lower after entering negative territory. The MACD oscillator is moving below both, its zero and trigger lines suggesting a weaker currency pair in the next few sessions. In addition, the Relative Strength Index (RSI) is following a downwards path below 50, confirming the recent bearish attitude of the price.
FTSE100 – Technical Outlook
After hitting a new all-time high at 7445 on March 16th, the FTSE 100 index has weakened in the previous week and met the ascending trend line at 7260 which stands over the last nine months. However, the rebound on the aforementioned diagonal line pushed the price higher and made an impressive recovery and now the attention is turning to Brexit negotiations. In addition, the index added more than 7% at its value since December 2016 and our expectation is a further upside movement, recording a new high if there is no significant impact from the referred main event. On the other side, if there is a break below the 7260 support barrier, it would open the way for the 7190 level which overlaps with the 100-daily SMA or moreover until the 7100 key level.
On the daily timeframe, the technical indicators seem to be in contrast. The RSI indicator bounced off the negative territory and jumped above the 50 level while the stochastic oscillator is trading higher with strong momentum. The MACD oscillator is endorsing the bearish scenario as it is falling and is moving with some weak momentum near the neutral area.
EUR/GBP – Technical Outlook
The euro is trading higher versus the British pound since yesterday’s period as it found a support on the 50 and 200 SMAs on the daily chart, which are near with the 0.8600 psychological level. TheEUR/GBP pair is establishing within a symmetrical triangle which started on October 11th, of 2016 and it seems to be a continuation pattern. The price could strengthen to the upside as it is ready to retest the descending trend line of the formation. A break above the latter level will open the door for the 0.8850 resistance barrier. Otherwise, a penetration of the uptrend line to the downside would expose the price towards 0.8300.
The technical indicators are confirming the recent upside movement as the RSI indicator climbed above the 50 level and is rising. Also, the MACD oscillator still lies below its trigger line but is on the positive path and seems to be willing for further rise.
U.S. Dollar Jumped; Consumer Confidence at 16-year High
During the second half of yesterday’s trading session, USD traders shifted their focus from the Trump’s healthcare bill to the upbeat economic data released and pushed the greenback to end the day higher against the major rivals. The U.S dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose 0.46% to 99.72 on Tuesday, the biggest single-day-rise since March 1st which pulled the price well above the almost 4-months low reached on Monday at 98.65.
The consumer confidence hit a 16-year high in March while trade deficit narrowed sharply in February and the inventories increased, a good combination for economics to think of raising their GDP estimates for the first quarter of 2017. Consumers’ confidence jumped to 125.6 according to the conference board, 9.5 points up from the previous month, the strongest level since December 2000, as current assessment and labour market conditions improved sharply in March. The U.S. goods trade deficit decreased to $64.8B from $68.8B in January, while the preliminary wholesale inventories also for February increased 0.4% from a decline of 0.3% the previous month. The housing market significant improvement adds to the optimistic data. The S&P/Case-Shiller home price indices for January increased 5.7% as expected from a rise of 5.5% before. Fed Governor Jerome Powell expressed that after U.S. Trump’s administration plans suffered a shake wave after the failure of the health care, Fed will wait and see before they decide the scope, timing and the contents of the fiscal policy. Meanwhile, Fed Vice Chairman Stanley Fischer predicts for two more rate hikes this year.
USD/JPY – Technical Outlook
It was a turnaround on Tuesday for the U.S. dollar, which tried to get back some of its losses against the Japanese yen and ended the day higher. The significance of the 110.10 support level drove theUSD/JPY pair to the upside and currently is trying to reach the 111.60 resistance barrier which coincides with the first support level of the pivot points. The price is looking more positive for the session ahead as well as the technical indicators rebounded on the oversold area.
The technical structure suggests further upside movement if there is a penetration of the 111.60 obstacle until the 112.90 handle. On the other hand, a slip below 110.10, it will drive the price towards 109.10 which is near with the 200-daily SMA. The RSI indicator is pointing upwards approaching its mid-level whilst the stochastic oscillator is moving sharply higher.
EUR/USD – Technical Outlook
The sell-off in the EUR/USDpair was driven by the reversal in the U.S. dollar but also the euro traders will be affected by the U.K. article 50 trigger which is starting today. The euro fell almost 0.5% versus the greenback during yesterday’s session and failed to jump above the 1.0900 strong psychological level. For the second day in a row, the price ended the day below the descending trend line which is holding since May 2016. Moreover, the price is about to snap a four-weekly winning streak and is approaching the 1.0720 support level.
For the short-term traders, we could experience a pullback towards the latter level, however, we would expect the pullback to be temporary before we continue south. The RSI indicator is still developing within the positive territory but is sloping downwards as well as MACD oscillator which is in the process to create a bearish crossover with its trigger line. There is no market moving Eurozone economic news today so the euro will most definitely affect from the British pound as Brexit begins.
What to Watch Today
A big day for the U.K. and U.K. Prime Minster Theresa May. She will lead the complex negotiations to withdraw U.K. from the European Union aiming the best for her country and the less negative impact where possible. The triggering of article 50 is scheduled for March 29th and is expected to take two years the withdrawal to complete.
No economic data is scheduled from E.U., thus attention will be on the U.S. economic releases in the afternoon. Pending home sales and MBA mortgage approvals are coming out, while FOMC members Charles Evans and John Williams will give speeches as well as Federal Reserve Bank of Boston President Eric Rosengren.