Market Analysis: Sterling’s Biggest Rally Since 2008

Sterling’s Biggest Rally Since 2008

GBP/USD rallied 360 pips after UK prime minister Theresa May’s speech.  Will the reality of hard Brexit eventually bring the sterling down?

By Wayne Ko, Head of Research & Education at Fullerton Markets

Sterling surprising rallied after May announced her plans for a hard Brexit last Tuesday, the biggest single day rally since 2008.  How would a hard Brexit benefit the sterling?  Let us take a look at the few key points in her speech.

  1. Give Parliament a vote on the final Brexit deal.
  2. Aim for phased transition and “smooth” Brexit.
  3. Seek a “full” exit from EU.
  4. Will not propose membership of EU Single Market.

Seeking a “full” exit from EU and not proposing to be a member of EU Single Market will have significant impact on UK’s economy.  New trade agreements will be needed between UK and its trading partners.  Negotiations will bring about uncertainties, possible impact to current trades and/or diplomatic relationships.  Apparently, the market has been expecting May to lean towards a hard exit.  The intention of working on a phased transition to ensure a “smooth” Brexit was cheered on by investors. If the court rules in favour of parliamentary approval in invoking Article 50 this week, then the momentum could carry on in near term.  Stay tuned for more episodes of Brexit!

Donald Trump, 45th President of the United States

Dollar tanked after Trump’s inauguration speech and continues to fall at the opening of this week.  USD/JPY fell below 114.  The initial plans announced by the White House includes withdraw from Trans Pacific Partnership, renegotiate NAFTA and other orders aiming at policies implemented by Obama.  Trump and his team has launched a frontal attack on China, ranging from its excessively weak currency to its one-China policy.  In short, it looks like Trump is setting up for a clash of the titans between the No. 1 and No. 2 economies in the world.  What about his fiscal spending plans to boost the economy?  Nothing mentioned yet.  One of the major reason supporting the dollar is Trump’s promise of fiscal spending.  It is no surprise the dollar tanked.  Little economic data is scheduled for this week.  With only unemployment claims, advance GDP and core durable goods orders on the table, politics is likely to be the main driver for this week.  We expect the dollar to be in a roller-coaster, unless Trump announces clear plans for fiscal stimulus soon.

 

Our Picks

GBP/USD – Possible Short.  Price is near key resistance around 1.2420.  Court ruling may result in short term rally, possible to go Short if GBP/USD fails to break resistance.

GBPUSD

 

EUR/GBP – Slightly Bearish.  EUR/GBP may head towards the support around 0.8625 ahead of the UK court ruling or thereafter.

EURGBP

 

XAG/USD (Silver) – Possible Short.  Price is near key resistance around 17.20.  Possible to go Short after Silver shows sign of rejection off the resistance.

XAGUSD

Top News This Week (GMT+8 time zone)

Australia: CPI q/q.  Wednesday 25th January, 8.30am.

We expect figures to come in at 0.7% (previous figure was 0.7%).

UK: Prelim GDP q/q.  Thursday 26th January, 5.30pm.

We expect figures to come in at 0.6% (previous figure was 0.6%).

US: Advance GDP q/q.  Friday 27th January, 9.30pm.

We expect figures to come in at 2.3% (previous figure was 3.5%).

Fullerton Markets Research Team – Your Committed Trading Partner

#brexit, #China, #Donald Trump, #GDP, #Sterling, #trump, #USD/JPY

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