Tuesday, December 11, 2018

Euro and Pound on the defensive as Theresa May postpones key Brexit vote

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks

MORNING BRIEFING

The Dollar gains across the board with investors dumping the European majors. The Euro and the Pound dropped when British PM Theresa May announced that she will postpone a key Brexit vote in Parliament. The risk off tilt sent Sterling to its lowest point since April 2017 as odds of a hard Brexit are mounting again. Equities in Europe started the week in the red, Gold paired its gains to pull back to $1,245 while Oil falls to $51.

The Euro and the Pound were the biggest laggards of the day yesterday as another twist in the Brexit saga drove investors away from the two currencies. British PM May decided to postpone the vote on the Brexit agreement casting doubts on whether she can indeed succeed in getting her draft through the Commons. With the Pound falling just shy of 1.25 as traders are seeing elevated risks of the UK crashing out of the EU and the currency's outlook appears bleak. A potential no-confidence vote from Labour may send the Pound even lower with the 1.2350 level being the next area of support. On another note, the release of the UK employment figures later today is expected to print steady but with market participants focused on the Brexit developments the fresh data will most likely go unnoticed.

The Euro was in a similar mood yesterday falling almost 100 pips to trade as low as 1.1350. Traders are increasingly worried about the developments in France with Macron desperate to put a lid on the Yellow Vests protests while the debacle across the Channel also dampens Euro's outlook. Prices have been gaining steadily over the past 30 days, having come off the 1.1200 lows so the broader trend is still pointing higher, but a deeper retreat towards the 1.1350 area will put this trend to the test. Today's ZEW Survey report doesn't look able to help the shared currency as analysts are expecting the confidence survey to print softer this month.

Gold eased off its rally over the past 24 hours after hitting the $1,250 level. Prices for the yellow metal are now trading around the $1,245 level as the Dollar gained during yesterday's session but the chances of a slower Fed rate hiking path next year have taken their toll on the recent price action. Looking ahead, as long as Gold remains above the $1,240 resistance-turned-support more gains may be seen with the next area of focus coming up around the $1,260 level. Oil retreats to the $51 area as market participants are skeptical on whether the production cuts announced by OPEC+ will manage to battle the oversupply seen in the market; in any case, Oil has rebounded from its previous lows so as soon as the cuts come into effect prices should push further to the upside.

Equities were in the red yesterday in Europe with most indices shedding more than 1% while most of their US counterparties were able to close above water. The arrest of Huawei’s CFO in Canada is casting doubts on whether a trade truce can be struck between the US and China and investors are understandably worried. This morning futures in Europe are pointing higher with the slide in the Pound helping UK exporters but contracts on the other side of the Atlantic are suggesting a bearish opening bell.

MARKET EVENTS TO WATCH

  • UK Unemployment Rate – 1.30pm
  • Euro-Zone ZEW Survey – 2pm

All times are GMT +4.

 
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