GBP Soars, Euro Resilient, while USD Softens – US Market Open

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MARKET DEVELOPMENT – GBP SOARS, EURO RESILIENT, USD SOFTER

GBP: The Pound is the clear outperformer in today’s session, which initially soared to one-week highs above 1.29, following reports that the EU-UK have agreed on future ties post Brexit. However, GBP shortly pared some of the initial strength as key issues still remain. A lack over clarity regarding Gibraltar has seen Spanish sources suggesting that they will not back the agreement, consequently, providing some uncertainty ahead of the EU summit on Sunday. That said, the biggest and most important hurdle that PM May faces is the meaningful vote, and as it stands chances remain slim that the deal will be passed through parliament, which would not only raise the risk of the UK crashing out of the EU, but also lead to a leadership contest in Theresa May. GBP will continue to face an uncertain future in the near term. As such, GBP gains will likely be yet again faded.

EUR: The Euro is holding above the 1.14 handle, which has been provided a slight boost from the latest Brexit headlines. However, topside resistance from 1.1430-40 where $1.1bln of vanilla options are situated have capped further upside in the Euro. Alongside this, the latest ECB meeting minutes did not provide any new dovish hints, consequently, the Euro saw a relatively muted reaction. 1.1430-40 remains the stumbling block, a break above however, paves the way for a retest of the 1.15 handle.

USD: The US Dollar is underperforming its major counterparts, with the exception of the high beta AUD and NZD. Recent Federal Reserve commentary continues to keep the US Dollar subdued. The US holiday has seen volumes drop, while there has been little in the way of notable newsflow to prop up the Dollar.

GBP Soars, Euro Resilient, while USD Softens - US Market Open

Data as of 1245GMT

IG CLIENT SENTIMENT GBPUSD Chart of the Day

GBP Soars, Euro Resilient, while USD Softens - US Market Open

GBPUSD: Data shows 71.5% of traders are net-long with the ratio of traders long to short at 2.51 to 1. In fact, traders have remained net-long since Sep 20 when GBPUSD traded near 1.30194; price has moved 1.9% lower since then. The number of traders net-long is 14.1% higher than yesterday and 29.2% higher from last week, while the number of traders net-short is 6.8% lower than yesterday and 4.4% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBPUSD-bearish contrarian trading bias.

Five Things Traders are Reading

  1. “Gold Price Latest – Is Palladium More Valuable than Gold?” by Nick Cawley, Market Analyst
  2. “GBPUSD Price Technically Weak Ahead of Crucial Brexit Talks”by Martin Essex, MSTA, Analyst and Editor
  3. “Brexit Latest: GBP Rises as EU-UK Agree Future Ties, However, Hurdles Remain” by Justin McQueen, Market Analyst
  4. “EURUSD Rise May be Capped by Cautious ECB Statement” by Justin McQueen, Market Analyst
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