The currency markets rebounded as the dramatic scenes from parliament yesterday make the prospect of bailing out of the EU out a deal seem less likely.
September 4, 2019 — 4 min read
Today PM Boris Johnson faces new challenges, after a disappointing defeat in the commons yesterday. Johnson’s first vote as PM, saw him lose to Tory rebels and opposition MPs who object to leaving the EU without a deal. The motion aimed at taking control of the daily agenda from the government got 328 votes in favour against 301 opposing it. This could now lead to a vote forcing the government to request another three-month extension to the Brexit deadline.
In response, Boris Johnson has said that he would call for a snap general election – thought to now take place on October 15th – if he is forced to go back to the EU and request an extension to the October 31st deadline. The PM spoke late yesterday, saying that an extension to Brexit would “hand control” of the negotiations to the EU and bring “more dither, more delay and more confusion”. Jeremy Corbyn and the Labour party on the other hand, will not support the call for a snap election unless the bill today passes to take the potential of a no-deal Brexit “off the table”.
The currency markets have rebounded from the lows of yesterday, as the dramatic scenes from parliament yesterday make the prospect of bailing out of the EU with a no-deal seem less likely.
Yesterday saw GBP/USD initially plunge below the key 1.20 psychological mark, hitting its lowest level since October 2016, before witnessing a dramatic intraday turnaround. The already weaker sentiment surrounding the British Pound deteriorated further following the disappointing release of the UK Markit Construction PMI, which fell to 45.0 in August and dragged the pair to an intraday low level of 1.1959.
The pair, however, managed to regain some strong positive traction and rallied to the 1.2100 handle in reaction to the outcome of yesterday’s parliamentary debates.
Market participants now look forward to the UK Services PMI - expected to soften to 51.0 in August from 51.4 previous - for some short-term trading impetus. However, the incoming UK political/Brexit-related headlines might continue to act as an exclusive driver of the broader market sentiment surrounding the Sterling.
Current support level on GBP/USD is 1.2110 with resistance holding at 1.2155
The GBP/EUR exchange rate had fallen to 1.0903 over the course of the past 24 hours, but has since steadily recovered to trade at 1.1030 in the mid-week session. With the recovery eyeing new levels of 1.0945 support and resistance at 1.1064.
After spending a major part of Tuesday's trading session in the red, the EUR/USD pair staged a minor bounce and finally settled near the top end of its daily trading range. The pair initially fell to an intraday low level of 1.0926 - levels not seen since May 2017 - but managed to recover over 70-pips and posted modest daily gains to snap six consecutive days of losing streak - the longest in five months.
A sharp intraday US Dollar pullback from multi-year tops - amid uncertainty over trade talks between the United States and China - turned out to be one of the key factors behind the pair's recovery. In the latest trade-related development, reports suggested that the US had declined a request to delay tariffs on about $110 billion of Chinese imports that took effect over the weekend.
There isn't any major market-moving economic data scheduled for release today and hence, the key focus will remain on the ECB nominated President Christine Lagarde's speech, which might influence the shared currency and produce some short-term trading opportunities.
Current levels sit at 1.0940 support and 1.1014 resistance.
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