Global Themes

Markets brace for a busy week
- GBP/USD suspended above key levels
- GBP/EUR eyeing a break of €1.12 this week
- EUR/USD set for a break higher?

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Sterling could well face another turbulent week as the UK Parliament returns from recess and the Brexit-related debates resume. UK industrial and manufacturing output along with goods trade balance and a GDP estimate for November will all be released on Friday. It’s a busy data week from the Eurozone too with consumer and business confidence data on Tuesday as well as the European Central Bank’s (ECB) December meeting minutes published on Thursday. The high yielding US Dollar will continue to shift with risk sentiment trading and traders will take cues from the Federal Reserve’s (Fed) meeting minutes released Wednesday evening. Several Fed members including Chair Jerome Powell are also scheduled to speak this week, which could potentially jolt the currency markets as witnessed on Friday when Mr Powell’s dovish comments sent the US Dollar sharply lower against its rivals.


GBP/USD suspended above key levels
Sterling is expected to be chiefly driven by Brexit-related news, but Friday’s influx of UK economic data could magnify volatility.

British lawmakers return to Parliament to debate Prime Minister Theresa May’s Brexit plan before the critical vote scheduled for next week, which the PM is widely expected to lose. It is uncertain what will happen if so, but a number of scenarios including a chaotic no-deal could send Sterling into a downward spin. The British Pound’s depreciation amidst the risk aversion that swept across markets last week, highlights the lack of demand for such a vulnerable currency.

GBP/USD experienced nearly a 4-cent trading range last week, crashing below $1.25 before scaling higher and leaping above some key resistance levels thanks to broad-based dollar weakness. The currency pair reconquered the $1.27 handle to stamp a third consecutive weekly gain having endured six straight weeks of losses prior. Although Sterling was helped by a surprise uplift in the dominant UK services sector, Brexit uncertainty will likely limit further gains.


GBP/EUR eyeing a break of €1.12 this week
GBP/EUR charged towards €1.12 at the back end of last week, having slipped below €1.10 for the only the second time since September 2017.

Despite risk tilted to the downside due to Brexit anxiety, it seems €1.10 has developed as a solid floor, supporting Sterling in the short term. GBP/EUR rose over 0.6% last week, putting an end to its longest consecutive weekly decline endured since May 2017. If the narrow trading range of last year continues then €1.15 remains a tough upside barrier to overcome with €1.12 the first hurdle in the short term.

The ECB’s minutes on Wednesday will be closely monitored for any dovish clues considering the slowing economic growth indicators from the bloc recently. Although Eurozone inflation figures disappointed last Friday, wages are inching higher, which is encouraging for ECB policymakers and supports demand for the common currency.


EUR/USD set for a break higher?
The battle between the world’s top two traded currencies continues as EUR/USD ticks around the $1.14 level, caught in a narrow trading range since November.

The US Dollar soared higher last Friday afternoon following the tremendous US jobs report results, only to be eroded by Fed Chair Jerome Powell’s cautious comments. Mr Powell hinted at possibly pausing rate hikes and slowing the pace of shrinking the Fed’s balance sheet, which has weakened the dollar.

Trapped in a 3-cent range since mid-November, EUR/USD appears well supported at the $1.13 level but upside gains limited at $1.15 with sharp spikes higher and lower fading back into the familiar range. Risk sentiment has improved amid easing trade tensions between the US and China, which has supported the Euro against the dollar. Trade talks between the world’s two largest powerhouses commence in Beijing today with high hopes of a deal being agreed. 

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