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Sterling Falls as Brexit Decision Looms

Sterling Falls as Brexit Decision Looms

GBP

Sterling strengthened last week and registered a multi-month high of 1.3398 against the Dollar. Emerging reports seem to concur in the view that a deal is edging closer, a British proposal of a transition period on fishing rights is being considered. The milestones in negotiations continue to be pushed back but it’s now believed that negotiations can run up to the beginning of December. The EU Commission also stated that EU decisions on equivalence for UK financial services would not be ready for the start of January. In this context, the EU will look at how to bridge the gap between a decision and the end of transition

Underlying confidence in the UK outlook remained weak following Wednesday’s spending review which continued to limit potential buying interest. There were also concerns that over 40% of England would be in the strictest coronavirus tier once the lockdown ends next week.Despite favourable risk conditions equities markets corrected; after Sterling failed to break above 1.3400 against the Dollar which helped trigger a correction and the Euro also regained ground to the 1.1200 area.

The UK data calendar is sparse; manufacturing Purchasing Managers Index (PMI) for November where expansion is expected.

 

USD

Last Friday, we highlighted that ‘upward pressure has more or less dissipated’ and we expected GBP to ‘trade within a 1.3315/1.3390 range’. GBP subsequently dropped to a low of 1.3284 before rebounding quickly (high has 1.3381). The rebound has scope to extend higher but any advance is likely limited to a test of 1.3365. The major resistance at 1.3400 is unlikely to come under threat. Support is at 1.3300 followed by 1.3280.”

Next 1-3 weeks: “We have held a positive view in GBP for more than 2 weeks now. Our latest narrative was from last Thursday (26 Nov, spot at 1.3385) wherein ‘a break of 1.3400 would shift the focus to the year-to-date high at 1.3481’. GBP subsequently touched 1.3399 before dropping to a low of 1.3284 last Friday (27 Nov). While our ‘strong support’ level at 1.3280 is still intact, upward momentum has waned and the odds for further GBP strength have diminished. In order to rejuvenate the flagging momentum, GBP has to move and stay above 1.3365 within these 1 to 2 days or a break of 1.3280 would not be surprising and would indicate that the positive phase in GBP has run its course.”

 

EUR

The Euro has reached near three month highs with the Dollars safe haven status extending recent losses on continued expectations of a global economic recovery with the impending implementation of the coronavirus vaccines.

The pair have risen to 1.1975, the highest level since early September, looks set to extend its gains of 2% for the month. The single currency has remained better bid throughout November despite the rising coronavirus cases across the Eurozone alongside the lockdown restrictions in each nation. 

A positive announcement from both Pfizer and Moderna around encouraging results of their experimental coronavirus vaccines triggering hopes for global economic recovery and rotation of money out of safe havens and into risk assets. This has helped the Euro ignore coronavirus concerns and score gains against the greenback. However, the recent ascent against the Dollar is complicating the ECB’s fight against deflation. The central bank is expected to boost monetary stimulus in December, and the dovish expectations would strengthen if the German CPI for November prints below estimates.

As of writing, the Euro currently trades just over the 1.1970 mark against its US counterpart. 

 

Data To Watch 

10:00 – EUR – ECB President Lagrade Speaks 

14:45 – USD  – Chicago PMI 

15:00 – USD – Pending Home Sales 

All Day – All Currencies – Opec Meetings

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