Currency markets showing range-trade

Pound sinks as Boris talks tough

With the US holiday crushing volumes and volatility, currency markets have contented themselves to range through the overnight session and into today quietly. The US dollar index was almost unchanged at 93.15, very near the top of its one-month range. The US dollar still has the potential to continue its short squeeze, if Wall Street equity markets return to work with a post-holiday hangover. Asia and Europe though, will likely adopt a wait and see stance until their arrival.

One notable exception is the British pound. The UK Prime Minister’s threat to leave with a Brexit deal on October 15th has unsettled markets which had almost priced out any Brexit risk. That situation is rapidly changing, notably in the options market where volatility has spiked over that time period.

With the (final) Brexit deadline at the end of year, investors may be in for plenty of Brexit jitters. The talks between the UK and the EU resume this week but the mood is one of gloom. On Monday, UK Prime Minister Boris Johnson said that leaving the EU without an agreement in place would be a “good outcome”.  The Financial Times reported that the UK government were also preparing to unwind parts of the previously signed exit agreement regarding Northern Ireland with the European Union. Predictably, the Europeans are in a surly mood as they view the British government as being far too rigid in its negotiating stance.

The rapid repricing of risk saw GBP/USD fall by 120 points to 1.3150 overnight. In Asia, GBP/USD has eased slightly and is testing the overnight lows at 1.3140. A failure implies further losses to the 1.3150 regions. GBP/USD has significant long-term support between 1.2980 and 1.3000. A daily close below this level sets in play the potential for a much larger downward correction.

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.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst - Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia and the New York Times. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

Latest posts by Jeffrey Halley (see all)