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The GBP/USD exchange rate rallied by over 1.5% on Wednesday and is quoted at 1.3130 on Thursday. Analyst Richard Perry of Hantec Markets says the technical configuration advocates for further Sterling gains.
Signs of life once more in the Brexit trade deal negotiations have seen sterling soaring higher yesterday.
The move on GBP/USD was also given a boost from the dollar coming under pressure too, but a huge breakout above 1.3080 has been achieved.
The market is certainly now moving to price in the likelihood that the EU and UK will find common ground for agreement and this should help to underpin sterling now.
This is what the technical on GBP/USD are also telling us.
At a six week high, confirmed with improving (and positively configured) momentum indicators. Near term supported weakness back into 1.3000/1.3080 is now a chance to buy.
Having broken out above 1.3080 this move can be taken as a continuation of the base breakout and 1.3330 is a valid implied target still.
Furthermore, there is upside that is open potentially even towards the September high of 1.3480.
Initial resistance at 1.3175 from yesterday’s high which has induced a little pullback, but already this morning there are signs of support forming above 1.3080 at 1.3120.
After weeks of uncertainty, suddenly there seems to be traction in two major macro factors, or at least this is what market reaction would suggest.
With Nancy Pelosi’s self-imposed 48 hour deadline, not really a deadline at all, the Democrats and the White House are seemingly close to agreement on fiscal stimulus.
The White House is apparently willing to offer $1.9 trillion, closer to the Democrats’ $2.2 trillion, but the talks continue over whether the two sides can actually sign something. The question is whether anything can be done before the election.
Although logistically, this is looking increasingly unlikely, no matter, the market is taking a view that this is a done deal nonetheless.
Subsequently the safe haven dollar has come under significant selling pressure and the market seems to be taking a view now.
On the other side of the Atlantic, the UK and EU have seemingly made enough progress towards their own agreement on a post-Brexit trade deal.
Talks will intensify now and will take place every day for the potential to have an agreement in place by mid-November.
Sterling has spiked sharply higher on this and unless there is anything to suggest talks breaking down, it should now be underpinned for the coming weeks.
However, despite all this, there are question marks in the market, reflected by the fact that equities are not sharply higher. In fact the one key indicator of risk appetite is under pressure.
Wall Street closed lower yesterday and futures are lower again today. Oil is also under pressure. This is a significant disconnect with yesterday’s market moves.
Watch to see if bond yields begin to unwind again, something which would play into corrective pressure on equities.
There is a bit of a US focus to the economic calendar today. The Weekly Jobless Claims at 1330BST are expected to improve to 860,000 (down from last week’s unexpectedly high 898,000). US Existing Home Sales at 1500BST are expected to increase by +5% to 6.30m in September (from 6.00m in August). The Eurozone Consumer Confidence is at 1500BST and is expected to deteriorate in October to -15.0 (from -13.9 in September).
There are a couple of Bank of England speakers this morning to watch for. The BoE’s Chief Economist Andy Haldane speaks at 0930BST, with Haldane often seen as a controversial speaker. Then at 1025BST BoE Governor Andrew Bailey also speaks, where any comments about negative rates are sure to be pounced upon.