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Brexit headbutts sterling

Forex
Michael O’Neill

FX Trader, Loonieviews.net

A Bloomberg headline on Brexit headbutted GBPUSD from 1.3273-1.3210 in New York trading. It said: "Chancellor Angela Merkel’s government is unconvinced by UK Prime Minister Theresa May’s latest attempt at a compromise arrangement for customs after Brexit, seeing it unworkable, according to a person familiar with the German stance. 

The news suggests that the cabinet meeting at Chequers on Friday to hammer out a Brexit proposal could be a futile effort. GBPUSD snapped the intraday uptrend line when prices dropped below 1.3230, suggesting further losses to 1.3180, today.

EURGBP sterling spiked above 0.8340 resistance setting up a test of the June peak at 0.8890 as EURUSD climbed on speculation of a thaw in EU/US auto tariff tensions. EURUSD bounced off of resistance at 1.1720.  A break below 1.1650 would lead to a retest of support in the 1.1560 area.

US economic reports were mixed.  ADP employment and initial jobless claims missed forecasts, but any disappointment was offset when the ISM non-manufacturing report rose 0.5 to 59.1.

Wall Street appears to like the improved tone to EU/US trade talks. The DJIA and S&P 500 are up about 0.50%.  The gains may be hard to sustain ahead of tomorrow’s US employment report, and in the event the China/US trade spat turns into a full-blown war.

Oil prices plunged after WTI touched $74.78 earlier this morning. The drop coincided with US dollar losses against the major currencies (except GBP) and reached a low of $73.70. President Trump is blaming Opec for the current level of oil prices, conveniently forgetting it was his action against Iran, which triggered the rally.
The commodity currency bloc is tracking broad US dollar moves, albeit reluctantly. Fears of an escalating trade war are weighing on the currencies. USDCAD traders are looking ahead to Friday’s Canadian employment report for confirmation that the Bank of Canada will raise rates on July 12.  USDCAD has good support in the 1.3050-90 area.


Chart: EURUSD one hour with resistance area highlighted:

Source: Saxo Bank

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