Comment: Investing in the forex market is often a tough business. Being aware of exactly where exchange rate will go next appears easy but escapes virtually all people. The main reason for this is they will often do not keep in mind every piece of information which can be found. Basically researching signals and forex charts only provides only half the picture. To obtain an advantage on the forex market details are king and figuring out how to find it is actually key. We look to bring you the most essential reports that will help you make smarter trading choices. This article, Pound Sterling Outlook: Theresa May’s EU Speech May Not Be Positive For The Pound provides you with the most up-to-date details about exactly where the professionals feel price should go providing you with an opportunity to be a little more profitable in your forex trading
The USD traded softly on a quiet Monday of data ahead of two days of testimony before congress featuring new Fed Chair Jay Powell.
In the UK Jeremy Corbyn has outlined his view that there will be no second referendum under a Labour government, but he would seek to be within the customs union.
Analysts at MUFG believe that Theresa May’s speech may hurt the Pound at the end of this week, while Maybank technical analysis points to more downside in the USD/JPY
US Dollar (USD) sags to open the week
The US Dollar had a poor start to the trading week, as although it started brightly in Asia on Sunday with USD/JPY leading the charge higher, this was soon to fade as US Treasury yields dropped. This left the Dollar vulnerable, and the major pairs all saw decent gains against the Greenback. GBP/USD was the top performer, rising over 0.5% above 1.4 before moving back below the round number in the European session, while the Euro was also higher, a little above 1.23. On what was a rather quiet day of economic releases, the only data out of the UK was BBA mortgage approvals, which showed a higher than anticipated amount of validated mortgages. It was still a rare above forecast reading, as they have been hard to come by in the Great Britain recently and every little helps. Most of the major economic news came out of Asia over the weekend, where it is now expected that Chinese Premier Xi Jinping and his party will scrap term the two-term limit, which will allow him to keep control of the ruling party indefinitely. This is an interesting development clearly because of China’s huge significance to global markets, but also because it would have been possible for Jinping to continue to rule China from another position which didn’t have term limits like some of his predecessors have done. The reaction in FX has been small, but USD/CNY did make a dip of around suggesting 0.4% suggesting business as usual for the strengthening Chinese Yuan. In Japan Governor Kuroda has renewed his commitment to maintaining extremely dovish monetary policy, but USD/JPY fell as the Dollar sold off regardless. The trade-weighted Yen was not so dynamic, as the Euro ate into most of the initial losses, suggesting the JPY was pretty steady If not strong. Forex Strategists at Maybank believe that the downtrend is firmly entrenched in Dollar/Yen, and expect rallies to fade in the mid 107s as their technical analysis points to a bearish bias.
“[USD/JPY] has lost most of its bearish momentum, while stochastics is climbing higher from oversold conditions. Weekly momentum and stochastics though remains bearish bias. Support nearby is around the 106-levels before 105.55 (2018 low on 16 Feb). Rebounds should meet resistance around 107.40 (38.2% fibo retracement of Feb high to low), 108-handle (50% fibo).”
Corbyn and May clash over customs union
The political situation in the UK has not become a lot clearer over the last few months, and if anything, things have arguably become more complicated even if you take Brexit negotiations out of things. The leadership struggle holds particular significance for the Pound, and so it is impossible to have a good outlook on GBP FX without understanding the political landscape. Theresa May’s leadership has been, to even the staunchest Conservative supporter, a disaster, but without a decent candidate to succeed her, she has held a fragile grip on power. Betting odds increasingly see it as unlikely she will still be Prime Minister within a year and now has the labour party neck and neck with the Tory party as the next governing party.
This makes Jeremy Corbyn’s comments on Brexit particularly relevant, as investors must now consider how things might unfurl under his leadership. His speech on Monday indicated that Labour plans to respect the referendum result and would prioritise getting a great deal for the UK. In actuality his speech, while evidently providing somewhat of a boost to the Pound said little as it seems almost impossible for the UK to remain a single market with the EU and respect the vote, but it perhaps demonstrates how public opinion still rests on a knife edge over leave/remain and Labour’s public position will mirror this outlook. Theresa May remains the most important speaker, however, and economists at MUFG believe her upcoming speech this Friday is unlikely to support the Pound much,
“Further clarity on the UK government’s plans for future trading relations should be welcomed by economic agents and market participants. However, elevated implementation risk will ensure that the final destination for future trading relations remains uncertain. In these circumstances, we doubt that the pound will receive much of a boost from Prime Minister May’s speech.”
Today should be eventful as Jay Powell is set to speak before Congress and his comments will be scrutinized for any hints on future rate hikes this year. The Dollar could well see some volatility if he is more forthcoming about his opinions than Janet Yellen, although in his role as Chair he may be less forthcoming than he has been in the past.