Pound bulls were injected with a renewed sense of inspiration on Friday after a newspaper report revealed that the official Brexit date in March could be delayed.
According to London’s Evening Standard newspaper, cabinet ministers believed a delay was possible, thanks to “a backlog of at least six essential Bills that must be passed” before the UK departs from the EU.
Sterling’s aggressive appreciation following the report continues to highlight how the currency remains extremely sensitive and highly reactive to Brexit headlines. It is fair to say that the outlook of the Pound hangs on the outcome of the meaningful vote on January 15. While it remains quite uncertain over what to expect next week in Parliament, the outcome will certainly have a lasting impact on the British Pound.
Focusing on the technical outlook, the GBPUSD has rallied over 100 pips today with prices jumping above 1.2810. However, the currency pair still remains on a very wide range on the daily charts with resistance at 1.2820 and support around 1.2480. A decisive breakout and daily close above 1.2820 is seen opening a path towards 1.2920. Alternatively, if 1.2820 proves to be a reliable resistance level then bears are seen exploiting the correction to push prices towards 1.2700.
Global stocks buoyed by cautious Fed and trade optimism
Global equity markets traded cautiously higher today as dovish comments from Federal Reserve Chair Jerome Powell and a modest outcome to US-China trade talks helped improve risk appetite.
Asian stocks closed broadly higher after extended trade negotiations between the United States and China concluded with a good “foundation” to iron out differences. In Europe, shares were steady amid the improving market mood with Wall Street expected to open positive amid growing speculation over the Fed taking a pause on rates this year.
While trade optimism has the ability to push equity markets higher, investors should not overlook the geopolitical risks brewing in the background. Brexit turmoil, political uncertainty in the United States and China growth fears are major market themes seen fueling risk aversion down the road. Although investors remain optimistic over the United States and China engaging in more higher-level negotiations to resolve trade differences, the clock is ticking towards the 90-day deadline. If no breakthrough is reached before the deadline and the US ends up imposing more tariffs on China, risk aversion will most likely return with a vengeance – ultimately exposing stock markets to downside shocks.
Commodity spotlight – WTI Oil
It has been a positive trading week for Oil prices thanks to Dollar weakness and improving market mood.
While the commodity has the potential to venture higher in the short term, gains are likely to be capped by supply and demand dynamics. Concerns over excessive supply in the markets coupled with fears over falling demand are likely to create obstacles for Oil bulls in the medium to longer term.
The combination of geopolitical risk, global growth fears, China’s economy and the Dollar’s trajectory remain themes seen influencing Oil prices. Although a weaker Dollar has the potential to offer Oil prices some support, robust production from US Shale and further signs of China experiencing a slowdown will translate to downside losses for Oil.
Focusing on the technical picture, WTI Crude has scope to venture towards $54 in the near term.
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