STERLING SURGES AFTER THERESA MAY CONFIRMS EU DEAL ON BREXIT
The sterling rose today after a leaked document showed that the UK and the European Union had agreed to develop an ‘ambitious, broad, deep and flexible partnership’. It also emphasized that the future relationship will respect the sovereignty of the UK and the integrity of the EU single market and customs union. The document is set to be signed on Sunday. This came as Theresa May met with Jean-Claude Juncker yesterday evening in Brussels. Still, the leaked document fell short of May’s pledge for a frictionless goods trade with the European Union. Earlier on, the head of the European Council, Donald Tusk tweeted that the text of the agreement had been agreed in principle. There will be more negotiations in the coming days. Also, there are chances that the deal will not be passed by the UK’s parliament.
The euro rose slightly against the US dollar after positive statements from Italy. The country’s deputy prime minister, who is also the head of the Five Star Movement, Luigi di Maio said that the country was likely to amend the budget. This came after yesterday’s threat by the European Union to sanction Italy. The current problem started when Italy’s new government submitted a budget proposal that aimed to increase debt. In an unprecedented move, the EU rejected the budget in October. This is because the country’s debt to GDP ratio of 131.8% is the second largest after troubled Greece.
The US dollar eased for the second consecutive day as uncertainty increased on the pace of future interest rate hikes. Already, a December rate hike is already priced in. This will be the fourth hike this year. In the market, there is chatter that the Fed is unlikely to implement more hikes in 2019, especially after recent turbulence in the market. There is also concern about the health of the US economy. This is because of the $9 trillion corporate debt that has been accumulated as a result of the low interest rates. In case of a major credit crisis and with rates so low, the Fed might lack the tools to reduce a crash. In addition, the federal government and states have more than $23 trillion in debt.
The EUR/USD pair was little changed today as US markets are expected to remain closed. The pair is trading at 1.1411, which is slightly above the open price of 1.1390. Its RSI has moved to 59 while the double EMAs are slightly lower than the price. The Average True Range (ATR) on the one-hour chart has tanked, which is a signal of the low volatility. Therefore, the pair could break out in either direction especially after Germany releases GDP numbers tomorrow.
The GBP/USD pair jumped to an intraday high of 1.2927 after the EU and UK agreed on the draft declaration of the Brexit deal. The price was above the 15-day and 30-day Exponential Moving Average. Before the news, the pair was trading narrowly, which is a sign of indecision by the market. As it rose, so did the RSI, which is currently at 50 from the day’s low of 37. It is likely that the pair’s volatility will increase reactions come in from UK parliamentarians.
Gold was little moved today but it remained at $1230. This was the highest level in more than 2 weeks. The increase was attributed to the weakness of the USD and the ongoing uncertainties about the financial market. The 15-day and 30-day EMAs show that the XAU/USD pair could continue moving up. The RSI on the four-hour chart has stabilized at the 64 level. The momentum indicator is also stable at the 100.50 level. Therefore, there is a likelihood that the pair will continue the upward trend as it approaches the important support level of 1250.