Sterling rebounds as Brexit negotiations are given an extension, U.S. equities rise, gold slumps to levels not witnessed since July
The U.K. pound rose sharply versus its peers during Thursday’s trading sessions, as optimism regarding the U.K. position on Brexit improved, with the European chief negotiator Michel Barnier suggesting that he’d extend the time before he has to report to E.U. commissioners with regards to progress, which would then allow trade talks to open. From the U.K. perspective their Brexit team simply have to resolve the four outstanding issues of: residency rights, justice oversight, the divorce bill and the Irish border issue. The UK is “very close” to securing a Brexit deal on the Irish border and an agreement is expected within hours, an Irish official has said. The Irish official told an event in Brussels that border talks were “moving quite quickly”, adding that Dublin was “going to work over the next couple of hours with the UK government to close this off”. However, earlier in the afternoon a DUP source suggested there had been no breakthrough.
As to whether the U.K. will satisfy all the criteria before the Sunday deadline, is extremely doubtful. The most probable outcome is the E.U. extending the decision period even further, or a fudged agreement full of complicated and evasive sophist language, designed to hoodwink the section of the U.K. population (who are in favour of Brexit) and the right wing news publications they read. It would appear that the E.U. are at pains to prove that the U.K. took the hard Brexit route out of Europe and that the remaining E.U. members didn’t force the issue. Sterling rose on the news of the extension, with several peers breaching the third levels of resistance, GBP/USD rising by circa 0.6% and EUR/GBP falling by circa 1% on the day, to a level not witnessed since July.
USA equity indices rose during the day as investors began to have confidence that the Republicans’ tax reform programme will come into law with very few amendments. Investors are also appearing confident that the USA government will avoid a partial govt shutdown on December 8th as the government effectively runs out of money on Friday without an extension of the debt. The debt is currently at circa $20.5 trillion, having risen by approx. $15 trillion between 2007-2017. Whilst Janet Yellen stated that she’s very concerned with regards to the level of government debt (notwithstanding the Federal Reserve balance sheet of $4.5trillion) investors and indeed the USA public, appear to be apathetic to the situation. Economic calendar news on Thursday mainly concerned the new weekly jobless and continuous jobless claims, with both figures beating the forecasts. The DJIA rose by 0.31% on the day, USD/JPY rose by circa 1% on the day, whilst rising to the third level of resistance.
The euro rose versus the majority of its peers, with the exception of the U.K. pound and the U.S. dollar. EUR/GBP was highly sensitive to Brexit rumours, the currency pair initially fell through S1, then rose through R1, then progressively slumped through the three levels of support, finishing the day resting near S3, down approx. 1% on the day at 0.874, breaching the 200 DMA sited at 0.879. EUR/USD remained below the 100 DMA sited at the 1.1800 handle. Price was contained in a tight bearish range during the day, with the currency pair closing the day out resting near to S1, down circa 0.3% at 1.179.
GBP/USD whipsawed through a wide bearish and bullish range on Thursday; initially falling through to the second level of support, the pair then recovered, to breach R2 closing out up circa 0.6% on the day at 1.348. Versus both the Aussie and the kiwi the U.K. pound rose by circa 1% on the day, GBP/JPY also rose by circa 1% throughout the day closing out at circa 152.33 close to R3. With Asian and emerging market indices recovering lost ground, yen’s safe haven appeal diminished, therefore it sold off versus its major peers.
USD/JPY traded in a wide bullish range, having breached the critical 113.0 handle during Thursday’s trading sessions, ending the day just above the level, up circa 1% on the day, having breached R3. Both the 100 and 200 DMAs sited at 111.5, are now some distance from current price. USD/CHF rose by circa 0.6% on the day to 0.994, close to R2. USD/CAD traded in a tight bullish range, ending the day at circa 1.285, rising to R1 up approx 0.3%.
XAU/USD collapsed to its lowest level since August. Ending the day at 1247, as the precious metal lost circa 20 points from its daily high, losing circa 1.5% during the day and failing to arrest its fall, as it crashed through S3, which was sited at 1254. With the 200 DMA now breached at 1267, a return to a risk on market mood would likely prevent any rush to prop up gold’s value as a safe haven.
EQUITY INDICES SNAPSHOT FOR DECEMBER 7th.
• DJIA closed up 0.29%.
• SPX closed up 0.29%.
• FTSE 100 closed down 0.37%.
• DAX closed up 0.36%.
• CAC closed up 0.18%.
KEY ECONOMIC CALENDAR EVENTS FOR DECEMBER 8th.
• EUR German Trade Balance (OCT).
• GBP Industrial Production (YoY) (OCT).
• GBP Manufacturing Production (YoY) (OCT).
• USD Change in Non-farm Payrolls (NOV).
• USD Unemployment Rate (NOV).
• USD U. of Mich. Sentiment (DEC P).
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