Sterling rises sharply as U.K. and E.U. reach agreement on the final Brexit cost, USA equites rise as tax reform passes vital hurdle in U.S. Senate
After months of gridlock the U.K. Brexit negotiation team has apparently finally agreed to pay an exit cost of circa €100b gross, which will reduce to circa €65b net over time. This first agreement, if completely ratified by the E.U., will now allow the negotiations to move onto discussing other issues, such as; the rights of current E.U. citizens to remain in the U.K. and the border issue between Northern Ireland and Ireland. Once concluded, the key aspect of trade negotiations can take place. The news that the final exit bill may be agreed came as the government came under pressure for failing to disclose the impact of the exit on the economy and after the BoE governor had revealed that the U.K. banks had enough reserves to survive a £50b hit, according to their stress tests.
As a consequence of the potential Brexit agreement news, which came late in the afternoon U.K. time, sterling rose sharply, having sold off earlier in the day; EUR/GPB crashed through S3 having at one point threatened to breach the second level of resistance R2 earlier in the day, whilst GBP/USD recovered from threatening to breach S3, to rise through R1, before ending the day flat. The U.K. main equity index the FTSE 100 ended the day up 1.04% due to a late rally, although the futures market in the FTSE saw the index fall after hours.
USA fundamental news that moved markets relevant to the U.S. economy, mainly centred around the republicans’ tax reform programme passing another legal hurdle in the Senate house. Setting the tax plan up for a marathon debate, followed by a vote in the house on Thursday, with both political parties confident that common ground can be reached to pass the bill, leading to a fall in the headline corporate tax rates, from 35% to 20%. The main U.S. indices rose sharply as a consequence of the progression, whilst the U.S. dollar rose versus the majority of its peers, with the exception of sterling, EUR/USD closing out the day down circa 0.6%. The only other economic calendar news of note concerned the Case Shiller house price index for the 20 main cities, coming in at 6.19% annual growth.
GBP/USD steadily fell through the first two support levels, to then reverse dramatically from 17:30 pm U.K. time, as news of the potential Brexit estimate cost and deal was revealed, ending the day at 1.333, close to flat on the day and resting near the daily PP. This whipsawing pattern of reversal over a wide daily range, from bearish to bullish conditions, was repeated versus the majority of the U.K. pound’s peers; GBP/CHF ending the day at approx. 1.313, up circa 0.3%, close to R1.
The euro fell versus all of its main peers throughout Tuesday’s trading sessions, there was a distinct lack of economic calendar news, or political events to encourage the sell off and the fall versus sterling and dollar was due to the respective currencies’ strength, as opposed to euro weakness across the board. EUR/GBP rose through R1 mid afternoon U.K. time, but the cross currency pair was then subject to the impact of the Brexit news, giving up the gains to crash through the three levels of support, to end the day down circa 1%, at 0.887. EUR/USD traded in a bearish range throughout the day, falling through S2, ending the day down circa 0.6%, at 1.184.
USD/JPY traded in an extremely narrow bullish range during Tuesday’s trading sessions, eventually breaching R1 deep into the New York trading session, but failing to hold the level, falling back to close out the day up circa 0.2%, at 111.4. USD/CHF traded in its customary negative correlation with EUR/USD, trading in a bullish range between R1 and R2 for the majority of the day, falling back to end the day up approx. 0.4% at 0.983. USD/CAD traded in a bullish range throughout the day’s trading sessions; breaching R1 and closing the day out just short of R2, up circa 0.5% at 1.281.
XAU/USD maintained its safe haven appeal during Tuesday, despite a risk on environment developing in the equity markets in: Europe, Asia and the USA. Price reached circa 1297, before reversing to close out near the daily PP at 1294. With the 100 DMA at 1284, the fact that gold failed to sell off during bullish equity markets, will give encouragement to gold investors that the current price levels may hold.
EQUITY INDICES SNAPSHOT FOR NOVEMBER 28th.
• DJIA closed up 1.09%.
• SPX closed up 0.98%.
• FTSE 100 closed up 1.0£%.
• DAX closed up 0.46%.
• CAC closed up 0.57%.
• EURO STOXX closed up 0.55%.
KEY ECONOMIC CALENDAR EVENTS FOR NOVEMBER 29th.
• EUR French Gross Domestic Product (YoY) (3Q P).
• EUR French Gross Domestic Product (YoY) (3Q P).
• GBP Mortgage Approvals (OCT).
• EUR German Consumer Price Index (YoY) (NOV P).
• USD Gross Domestic Product annualised (QoQ) (3Q S).
• USD Yellen Appears before Joint Economic Committee of Congress.
• USD Pending Home Sales (YoY) (OCT).
• USD U.S. Federal Reserve Releases Beige Book.
• JPY Industrial Production (YoY) (OCT P).