GBP/USD whipsaws in a wide range, as optimism regarding Brexit rises and falls Equity indices slump, as global trade fears resurface
The commentary regarding Brexit has varied dramatically over recent weeks, depending on where you obtain your news. Arguably, the most accurate and unbiased coverage, comes from the financial media, where they have no axe to grind politically. It’s the economics that’s at the forefront of the opinion formers who write for: Reuters, Bloomberg and the F.T. and not political bias.
Whereas, in the U.K. mainstream media, the coverage and opinion varies wildly, dependent on the political allegiances of the publication. The contrast, between the reporting at, for example, Bloomberg, versus the various popular U.K. news outlets on the subject of Brexit, is poles apart. On Thursday that comparison was starkly illustrated.
After her meeting with various E.U. leaders, Bloomberg reported that Mrs. May came away with nothing new, she accomplished zero. However, in the U.K. news outlets they described her as beginning to wear down the E.U. to obtain concessions. Perhaps this dichotomy caused GBP/USD and the sterling cross pairs, to whipsaw dramatically throughout the afternoon trading session, as the U.K. prime minister met various delegates from Europe.
At 12:00pm U.K. time on Thursday, the U.K. BoE announced the U.K. base rate would remain at 0.75%. Mark Carney, the Governor of the BoE, then delivered a downbeat press conference, in which he warned that U.K. GDP would reduce to 1.2% or less, in the event of a no deal Brexit. He suggested the country’s economy could flirt with recession, whilst growth might recede back to 2008-2009 levels. GBP/USD immediately sold off, reaching S3 and posting a daily low of 1.285, a level not seen since January 21st.
However, the value of GBP/USD and sterling versus its peers, recovered during the afternoon, as the public relations spinners in the U.K. govt began to put a gloss on the meetings the P.M. had with her counterparts. Cable rose through R2, and by 21:00pm U.K. time GBP/USD traded up 0.20% at 1.295, just below the 200 DMA and close to the 1.300 handle. The whipsawing nature of cable should serve as a warning to traders of sterling, as to how volatile the currency could become in the countdown to Brexit, which is still scheduled to occur on March 29th.
As sterling whipsawed versus many of its currency peers, the U.K. FTSE 100 followed a negatively correlated pattern; as GBP/USD rose in the afternoon session, the FTSE sold off. After printing a seven week high on Wednesday, clawing back the majority of the losses incurred in the December 2018 sell off, the index closed the day out at 7,093, down 1.22%.
The cause of the FTSE sell off wasn’t entirely due to the correlation between sterling and the top U.K. companies being American owned and earning revenue in dollars. The dismal GDP forecast by the BoE, was twinned with the European Commission publishing equally dire figures, indicating that all of Europe would probably suffer an economic downturn, based on their forecasts.
The slump wouldn’t be Brexit related in the opinion of the E.C., it would most likely occur as a consequence of the global downturn, caused by the tariffs and trade war the Trump administration engaged in with China, during 2018, which has continued. Germany’s DAX closed down 2.67%, as poor industrial production figures for the country added to the gloom enveloping Europe’s markets, with France’s CAC closing down 1.83%. By 21:20 U.K. time, EUR/USD traded down 0.14% at 1.134.
The possibly of a renewed Trump argument with China, also caused markets in the USA to become spooked, Donald Trump and Chinese President Xi Jinping, are now unlikely to meet before a March 1st deadline, set by their governments to reach a trade deal. The DJIA sold off by over 2% at one stage during the New York session, reaching the 25,000 critical handle, to then reject the key level, closing the session out at circa 25,160, down 0.87%. The SPX fell by 0.93% and the NASDAQ by 1.18%. USD/JPY remained under the critical 110.00 handle, trading down 0.14% at 109.8.
The unemployment data published each Thursday for the U.S. economy by America’s BLS, missed forecasts, with both weekly unemployment claims and continuing claims rising. During Friday’s trading sessions, the key high impact calendar news to be published, relates to Canada’s latest employment and unemployment data. The unemployment rate is predicted to rise to 5.7% from 5.6%, whilst only 5k jobs are believed to have been added to Canada’s economy in January, from over 10k added in December. Analysts and FX traders may have become switched on to this forecast, as CAD sold off sharply during the afternoon trading session on Thursday, versus its peers. USD/CAD rose through the third level of resistance R3, closing out the day’s sessions at 1.330, up 0.71%.
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