European update – Another Brexit vote

Sterling slips amid Brexit chaos

The pound is looking a little soft after another chaotic week in Parliament, one in which MPs decisively took back control before indecisively failing to agree on an alternative. Theresa May finally won the backing of numerous hard-line Brexiteers – although her deal being better than no Brexit is hardly a ringing endorsement – before one almost immediately claimed her deal is dead. And the speaker attempted to thwart attempts for a third vote on her deal before agreeing that half of the deal is different enough, unfortunately though that’s the half that has drawn the most criticism and may well be rejected today. Chaos.

GBPUSD Daily Chart

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It may be surprising therefore to see that the pound has turned south this week but hasn’t broken any major levels, just moved back to the lower end of its recent range, so traders aren’t too gloomy. The reason for this is simple, no-deal remains possible but unlikely. The realistic worst case scenario right now is a long extension and that has its positives and negatives, from a sterling perspective. On the one hand, it’s another prolonged period of economic uncertainty but one after which we could end up with a softer Brexit than that on offer, or none at all.

Strong dollar sends gold south

It’s been a good couple of days for the dollar, albeit ones that probably owe more to other currencies being weak than the dollar necessarily being strong. Still, it goes to show that once again, the dollar remains a favourite among traders when times are tough, aided of course by the strong US economy and enviable – albeit slowing – growth.

Gold vs US Dollar Index

Source – Thomson Reuters Eikon

Naturally, a stronger dollar isn’t ideal for gold which had seen something of a resurgence. It had already started to stumble, so it’s no surprise that this has further taken the shine off it. Near-term headwinds look likely to remain for the yellow metal which could see recent support around $1,280 come under pressure. Next support below here could be found around $1,260 but ultimately, the dollar – and therefore weakness elsewhere – will likely prove decisive on the downside potential here.

Oil prices edge higher on trade optimism

Oil prices are a little higher on Friday, with positive US/China trade headlines certainly supportive. This remains the greatest risk for the global economy so positive headlines are naturally risk positive. It’s certainly helping equity markets.

Oil (WTI and Brent) Daily Chart

Inventory data this week has shown slightly higher builds than expected which may be holding oil back. US oil rig data today will be closely watched as ever, with the trend since November heading in the wrong direction, although with the country pumping at record levels, it’s clearly not having a negative impact yet. That can surely only last so long though if the trend continues.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.